Issue of Shares

Introduction to issuing new shares

A company may issue new shares for various reasons, including raising capital from investors, adding new shareholders as part owners of the business or on the exercise of employee share options.  The issue of new shares increases the total number of shares in the company’s issued capital, resulting in the dilution of the shareholdings of existing shareholders’ holdings.

The company and subscriber must agree on the amount to be paid and the number of new shares to be issued.  The price per share must not be less than the nominal (par) value of the relevant share class.  The price can exceed the nominal value, with the excess constituting share premium.

Our section on the issue of shares covers the necessary documents for a standard share issue by a private limited company without a separate subscription agreement. For share issues related to negotiated transactions, see Investing in a Company.

Difference between allotting and issuing new shares

The terms “allotment” and “issue” are often used interchangeably, but there is a distinction.  Shares are “allotted” before they are “issued, though in most instances this will not have any material impact.

Under the Companies Act 2006, shares are “allotted” when a person acquires the unconditional right to be included in the company’s register of members in respect of the shares.  In the allotment of shares in a private limited company, this usually occurs once the board of directors approves allotment and payment is received by the company for the shares.

Shares are “issued” once the allotment is registered in the company’s register of members.  

Considerations before allotting and issuing new shares

Before allotting and issuing new shares, the following corporate matters should be checked and documented:

• ensure that the directors have authority to allot shares
• determine whether existing shareholders have pre-emption rights on new shares and whether these rights will be followed, waived or disapplied
• check whether the company’s Shareholders Agreement or Articles of Association require consent from certain shareholder or a specified percentage of shareholders
• review whether the subscriber, if not already a shareholder, needs to become party to the company’s Shareholders Agreement? 

Authority of directors to allot new shares

Under the Companies Act 2006, directors must have shareholder authority to allot new shares unless the company is a private limited company with only one class of share and there is no prohibition or restriction on the directors’ authority in the company’s Articles of Association.

For companies with multiple share classes, shareholder approval for the directors’ authority to allot new shares will be required unless previously granted either in the company’s Articles of Association or by a pre-existing shareholder resolution.

Pre-emption rights on new shares

Pre-emption rights may apply to the allotment of new shares, giving existing shareholders rights of first refusal. In the case of a private limited company, these rights apply unless:

• they have been disapplied in the company’s Articles of Association or by a special resolution of shareholders, or
• the shares are issued under an employee share scheme, for non-cash consideration or a bonus issue  

The company’s Shareholders Agreement may also contain its own pre-emptive procedure or shareholder consent requirements.  

If pre-emption rights apply the company can either following the procedure or seek shareholder approval to disapply them. A shareholder may also be willing to waive its pre-emptive rights.

For template shareholder resolutions granting directors the authority to allot shares and disapplying pre-emption rights, see

• Shareholder resolutions – authority to allot, pre-emption disapplication
• Shareholder resolution- pre-emption disapplication

Binding new shareholders to the Shareholders Agreement

New shareholders may be required to become party to an existing Shareholders Agreement on the allotment of new shares. The requirement may be found either in the company’s Articles of Association or in the Shareholders Agreement itself.

This requirement is satisfied by the subscriber executing a Deed of Adherence to the Shareholders Agreement, the form of which will either be specified in the Shareholders Agreement itself or will be in a form approved by the board of directors.

For a template Deed of Adherence on the allotment of new shares, see

• Deed of Adherence – share issue