BACKGROUND TO EQUITY FINANCE
- ‘Capital’: Funds available to run the business.
- ‘Share Capital’: Funds raised through the issue of shares.
- Issued share capital: Subscriber shares by 1st members and further shares after incorporation.
- Only receive back when company sells their stake, company sold on flotation or on winding up.
- Incentive to invest = receipt of income through dividends.
- S.542(1): Shares must have a fixed nominal value, S.542(2): Otherwise void.
- S.558: Allotment = when SH acquires unconditional right to be included on register of members.
- S.112(2): Issued = When actually registered on register of members, only have full legal title then.
PROCEDURE FOR ALLOTING SHARES
Step 1: CAP – Is there a cap in the A’s on the number of shares that can be allotted?
- All CA 1985 companies had a cap – an authorised share capital in their memorandum.
o S.28(1) CA ’06: Deemed restriction that CA ’85 companies will continue to have a cap as
memorandum becomes part of A’s.
Remove cap using -
o S.121 CA 1985: OR (exception to rule that need SR), or
o S.21(1) CA 2006: SR to adopt new A’s that do not include a cap.
- CA 2006 companies will not have a cap unless SH amend the A’s by SR to put one in.
o S.21(1): SR to amend A’s to remove or increase cap.
o S.617(2)(a): Share capital increases each time it issues shares, so check not reached cap using –
Articles: Will state cap, if any, pre-emption and classes
Resolutions: Show authority, pre-emption and class rights
Register of members – shows if issued and confirms filings
Form SH01 – shows most recent allotment (although no guarantee issued)
Confirmation statement – shows how many issued and how holds
S.853B: Notify if change in members or PSC
S.853D: Must include total shares, aggregate nominal value and rights attached
S.853F: Applies to traded and non-traded alike
Step 2: AUTHORITY – Do the D’s need authority to allot?
- S.549: Cannot allot shares unless in accordance with –
o S.550:
Private company with only 1 class of share, power to allot shares of same class.
If CA 1985 company then also need OR to authorise reliance on S.550.
o S.551:
S.551(1): Authority may be given in A’s (by SR) or by OR under S.281(3).
S.551(3)(b): Must state how many and date it expires (check if existing authority still valid –
too old or already issued too many shares?).
S.551(7)(a) & (b): Can allot after expiration if agreement to allot was made before but only if
authorisation expressly allows.
S.551(8): Authority can be revoked at any time by OR (even though usually would need SR).
CA 1985 company relies on S.80 1995 authority – OR.