Shareholder resolutions: authority to allot shares and disapply pre-emption rights

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Shareholder resolution to grant directors general authority to allot shares and to disapply statutory pre-emption rights.

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Shareholders resolution: authority to allot shares and disapply pre-emption rights

Shareholder resolution to grant directors general authority to allot shares and to disapply statutory pre-emption rights

Background 

Do directors need shareholder approval to issue new shares?

Directors of a company are required under the Companies Act 2006 to have shareholder authority to allot new shares.

An exception to the requirement to have authority is in the case of a private limited company with only one class of share provided that there is no prohibition on the allotment of new shares in the company’s Articles of Association.

Where a company has more than one class of share, the directors will need shareholder authority to allot new shares unless there is an existing authority in place to allot shares either in the company’s Articles of Association or by a pre-existing ordinary resolution of shareholders which remains in force.

When do pre-emption rights apply on the issue of new shares?

In addition to the authority to allot new shares, an allotment of new shares may also be subject to pre-emption rights in favour of existing shareholders.  Pre-emption rights give existing shareholders first refusal on an issue of new shares – the new shares must be offered to existing shareholders before they can be taken up by new investors or shareholders.

Under the Companies Act 2006, pre-emption rights will apply on the issue of new shares by a private limited company unless:

  • the pre-emption rights have been disapplied either in the company’s Articles of Association or by a special resolution of shareholders, or
  • the issue of new shares is under an employee share scheme, wholly or partly for non-cash consideration or a bonus issue

In addition, the company’s Shareholders Agreement may contain its own pre-emptive procedure or shareholder consent requirement applicable to the issue of new shares.

If there are applicable pre-emption rights, a company wishing to issue new shares has the choice either to follow the pre-emption procedure or to seek shareholder approval to disapply them.

About these shareholders resolutions

These resolutions provide for:

  • the grant of a general authority to the directors to allot new shares up to a maximum specified amount of share capital
  • the disapplication of the statutory pre-emption rights in the Companies Act 2006 for shares allotted pursuant to that general authority

Document features

  • Shareholders written resolutions – one ordinary resolution and one special resolution
  • Ordinary resolution to grant general authority to directors to allot shares:
    • up to specified aggregate nominal amount of capital
    • for limited time period (maximum permitted 5 years)
  • Special resolution to disapply statutory pre-emption rights on the issue of new shares in relation to shares issued pursuant to the general authority

Explanatory guidance

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Shareholders resolution: authority to allot shares and pre-emption disapplication

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