The allotment of shares plays a crucial role in the growth and development of companies. Understanding the intricacies of this process is essential for both investors and business owners alike. This blog delves into the various aspects of share allotment, providing valuable insights and practical advice for those involved in the process while providing an overview of key points and shedding light on the importance of share allotment and its implications for businesses and investors.
Shares can only be allotted by a company if it is authorised by:
- The constitution of the company; or
- By ordinary resolution; and
- There must be sufficient authorised but unissued shares in the Company;
- If the authorised share capital is not sufficient it must be increased by way of an ordinary resolution to increase the authorised share capital and a special resolution to update the Company Constitution; and
- They must be allotted by the directors (unless the constitution states otherwise)
There is no time limit to which the authority to allot shares applies as was previously the case under the old Companies Acts. Therefore, it can be given for an indefinite period (unless the company constitution, shareholders agreement or ordinary resolution states otherwise).
Where shares are allotted, the company must file a form B5 (return of allotments) with the Companies Registration Office.
Pre‐emption rights on an allotment may arise by statute or under the company’s Constitution. Section 69(6) of the Companies Act 2014 gives existing members of a private company a statutory pre‐emption right in proportion to their existing holding on an allotment of new shares of that class. These pre‐emption rights may however be dis-applied by the Constitution. A pre‐emption right is basically a right of first refusal to the shares in question. The company must offer the shares to the existing shareholders 14 days before any shares are allotted to any other party. The existing members of that class of shares can request that the shares be issued to another party on those members' behalf.
The constitution of a private company may exclude the statutory pre‐emption right. Where the statutory pre‐emption right is not excluded in the constitution, a special resolution may dis-apply the section in respect of a particular allotment.
Pre‐emption rights are not given:‐
- to allotments for non-cash consideration (e.g., bonus shares).
- If the Constitution disapplies the operation of Section 69(6).
- If the allotment is in respect of the employee share scheme.
It is important to note that shares may not be issued at a discount. Shares may be issued for cash or non‐cash consideration.
In addition, shares may be issued at a premium.
It is possible to issue partly paid shares, this occurs where payments by instalments are proposed, or part of the consideration is to be left unpaid until called in by the Directors.
If shares are issued at a premium then the amount paid, which is in excess of the nominal amount of the shares is credited to the share premium account unless the provisions of Section 72 (where the shares are issued as part of a merger – occurs where the company issues shares in itself in return for receiving shares in another company) or Section 73 (where the shares are issued as part of a group reconstruction) or Section 75 (occurs where the company issues shares in itself in return for receiving shares in another company such that that company has a wholly owned subsidiary after the transaction) apply in which case the premium would not form part of the capital of the company. In this case, the excess would be credited to another reserve (could possibly be called a merger reserve) which would be considered to be a distributable reserve.
The allotment of shares is very common and as such is applicable to all companies.
- Certain CRO forms may be filed manually or online, please refer to the CRO website for details on filing Forms.
- Where Directors are allotting shares it is important to check to what extent Directors are authorised to do so, often a period of time may be allocated to the authorisation e.g. five years. If the allotment is outside this period it is not permitted without re-authorisation.
- Does the entity require the internal Beneficial Ownership and RBO to be amended following the allotment?
- If yes, ensure the RBO is updated within 14 days of the transaction.
- Has tax advice been sought on the allotment?
By understanding the various factors that influence share allotment, as well as the legal and regulatory requirements surrounding it, investors and business owners can make informed decisions that contribute to the success and growth of their respective ventures. As the business landscape continues to evolve, staying up to date with developments in share allotment will remain a critical component of effective financial management and investment strategy.
If you require assistance or advice on the allotment of shares, please contact our Company Secretarial team on 053 91 000 00 or email [email protected].
The contents of this article are meant as a guide only and are not a substitute for professional advice. The authors accept no responsibility for any action taken or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article.