You are an ambitious entrepreneur, and your company is experiencing rapid growth. You are considering issuing new shares to fuel further expansion and meet your funding needs. However, issuing shares can be complex, involving legal and regulatory requirements that must be navigated carefully. Failing to comply with these requirements could have severe consequences, including potential penalties or legal disputes. This article will guide you through the steps your company should take when issuing shares, ensuring compliance and protecting your business interests.<\/p>\n\n\n\n
Only limited companies can issue shares. Therefore, you need to incorporate your business as a company to be able to issue shares. This is one of the reasons why the private limited company is the structure that most business owners choose to operate. Therefore, this article will only deal with issuing shares for businesses incorporated as private companies limited by shares.<\/p>\n\n\n\n
Before issuing new shares, you must thoroughly review your company’s articles of association. This document outlines the procedures and any restrictions or conditions governing share issuance. Familiarise yourself with these provisions to ensure compliance and avoid any potential breaches. <\/p>\n\n\n\n
For example, the articles may stipulate requirements such as first offering the shares to existing shareholders, voting thresholds for shareholder approvals, limitations on the total number of shares that can be issued or minimum pricing for new shares without triggering anti-dilution clauses.<\/p>\n<\/div>\n\n\n\n
Once you have reviewed the articles, it is time to seek approval from your company’s board of directors. Convene a board meeting and pass a resolution detailing the specifics of the share issue, including the number of shares, share class (e.g., ordinary or preference), and issue price. Board resolutions held at a meeting are typically passed when a majority of directors vote in favour. Depending on your articles and shareholders agreement (if you have one), you may also require approval from existing shareholders through an ordinary resolution (simple majority) or a special resolution (75% majority). <\/p>\n\n\n\n
Shareholder approval is typically required for significant share issuances that could dilute existing shareholders’ stakes. Shareholder approval will also be necessary when issuing a new class of shares and you do not already have authority (such as when issuing your first class of preference shares when you only have ordinary shares currently).<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n