Issue of Shares

Issuing shares is where a company issues new shares to either existing or new shareholders, thereby increasing the total number of shares in the company’s issued share capital.  Issuing shares involves two closely linked legal steps:

• allotment: this occurs when the board of directors approves the allotment and the subscriber for the shares acquires the unconditional right to be included in the company’s register of members.
• issue: this refers to the formal entry of the shareholder in the company’s register of members. Only then are the shares considered issued.

The process typically involves agreeing on the number of new shares to be issued and the price at which they will be issued (at or above nominal value), followed by board and, where applicable, shareholder approval, offering the new shares to either existing or new shareholders and culminating in updating statutory registers and any required filings.

Although often used interchangeably, there is a technical distinction:

• allotment: allotment of shares is the point (prior to their issue) at which a person obtains the unconditional right to be entered on the register of members.
• issue: the formal record of the allotment in the company’s register of members. 

In practice, these stages are usually completed in quick succession.

Before proceeding, companies must carefully review the legal and procedural requirements for issuing new shares.  Key considerations include:

• confirm directors’ authority: directors need valid shareholder authority to allot shares unless authority is already conferred in the Articles of Association, or the company is a private company with only one class of share in issue (and no new share class is being created for the share issue).  Authority is typically granted by an ordinary resolution of shareholders (simple majority).
• manage pre-emption rights: existing shareholders may have statutory or contractual pre-emption rights, giving them the right to be offered new shares on a proportional basis.
  These rights must either be observed or formally disapplied – usually by a special resolution (75% shareholder approval).
• creation of a new share class: if the company intends to create a new class of shares with different rights (e.g. preference shares or non-voting shares), this is considered a change to the company’s capital structure. It will normally require:
  • an additional special resolution of shareholders to amend the Articles of Association, and
  • possibly, further consents under a Shareholders’ Agreement, if one is in place.
• review Articles of Association and any Shareholders’ Agreement: these documents may include additional requirements – such as consent thresholds or reserved matters that require unanimous or enhanced shareholder approval.
• engage shareholders: issuing new shares can dilute existing holdings or alter voting rights. If share class rights are being introduced or affected, it’s good practice to engage shareholders early to gain support and ensure required resolutions are passed smoothly.
• consider valuation and pricing: particularly where shares are issued to investors or employees, it’s important to determine a fair valuation and set the issue price accordingly  – especially where SEIS/EIS tax relief or employment-related securities are involved.
• tax implications: while there’s no stamp duty on issuing new shares, there may be income tax or NIC consequences – for example, where shares are issued to employees or directors. Legal or tax advice is recommended in these situations.

Broadly, companies issue new shares to:

• raise capital, attracting new or existing investors.
• introduce new shareholders as part-owners without seeking additional funds. 
• facilitate acquisitions, by issuing shares to the seller. 
• satisfy employee share options, such as under ESOPs or EMI schemes.

A deed of adherence is a legal document executed when a new shareholder joins through the issue of new shares.  It ensures that the new shareholder becomes a party to any existing Shareholders’ Agreement.

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

• Deed of Adherence – share issue

Pre-emption rights entitle existing shareholders to be offered new shares proportionate to their current holdings before shares are offered to third parties. These rights arise from:

• Statute, under the Companies Act 2006.
• Articles of Association or Shareholders’ Agreements (contractual rights).

To proceed with an allotment:

• Offer must be made to existing shareholders first, or
• Pre-emption rights must be waived or disapplied, usually via special resolution. 

Certain issues (e.g. under employee schemes or for non-cash consideration) may be exempt from these pre-emptive rights.

Essential documentation typically includes:

• Board minutes or resolutions approving the allotment and issue of the new shares.
• Shareholder resolutions, if needed – for example, to grant authority to the directors to issue shares or to waive pre-emption rights. 
• Subscription or application letter from the subscriber.
• Deed of Adherence to existing Shareholders Agreement, where required (see above). 
• Share certificate template to issue to new shareholders.
• Return of allotment (Form SH01) to file with Companies House within 30 days.
• Register of members update and, if relevant, PSC register and associated forms.

Yes – particularly for informal, low-value investments (such as from founders or friends and family), where a short-form agreement or even a board resolution with payment and share certificate might suffice.

However, even in those cases, it’s advisable to:

• clearly record the number of shares, price, and investor details
• ensure proper authorisation and filings (shareholder resolutions and consents, board minutes, SH01 form, register updates)

A Subscription Agreement adds clarity, especially where more than one investor is involved, or when investor protections are expected.