As a company director or shareholder in England and Wales, you may need to issue new shares to raise capital, bring in investors, or restructure ownership. The process of issuing new shares may seem straightforward, but you must consider several legal requirements to ensure you handle the process correctly. If not handled correctly, issuing new shares could lead to disputes with existing shareholders, breach of directors’ duties, and potential legal action. This article will examine what happens when a company issues new shares and the key considerations you must address.<\/p>\n\n\n\n
When a company issues new shares<\/a>, it creates additional shares in the company’s share capital and requires allocation to new or existing shareholders. This increases the total number of shares in circulation and typically changes the ownership percentages of existing shareholders. <\/p>\n\n\n\n The new shares will carry the same rights as existing shares unless specified otherwise in the company’s articles of association. The most common share class is ordinary shares, which commonly allow shareholders holding these shares to have certain voting rights, dividend entitlements, and capital rights. However, the company may choose to issue different classes of shares with varying rights attached.<\/p>\n\n\n\n When issuing new shares, you must carefully consider the legal requirements and existing shareholders’ interests. The process must comply with the Companies Act 2006<\/em> and the company’s constitutional documents.<\/p>\n\n\n\n Under the Companies Act 2006<\/em>, existing shareholders have statutory pre-emption rights<\/a> when a company issues new shares for cash consideration. These rights give existing shareholders the first opportunity to purchase new shares in proportion to their current shareholding. This prevents dilution of their ownership percentage without their consent.<\/p>\n\n\n\n However, companies can disapply pre-emption rights by passing a special resolution of the shareholders of the company. This special resolution would require a minimum of 75% of the voting shareholders to agree. Private companies can also exclude pre-emption rights entirely through provisions in their articles of association.<\/p>\n\n\n\n Pre-emption rights play a key role in protecting minority shareholders and prevent others from diluting their ownership against their wishes. If these rights apply, you must follow the correct procedures, including giving existing shareholders at least 14 days’ notice of their right to subscribe for new shares.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nPre-emption Rights<\/h2>\n\n\n\n