A new share allotment is one of the main ways for a company to raise new finance. Compared to share transfers, where no new money is received by the company, a share allotment can provide funds to expand or otherwise advance the business.
In this article, we take you through the process of allotting shares. We also provide a number of useful templates that you can adapt and use.
Before continuing with a share issue, it’s worth making sure that you’ve considered the alternatives to raise finance. Those might include business loans from banks, other institutions or individuals, or the sale of business assets.
You should also ensure that you’ve established that the directors have appropriate authority to issue new shares and there’s no legal impediment to allotting shares.
Issue shares the easy way
Inform Direct is the easy way for companies to manage share allotments.
> Submit SH01 forms to Companies House
> Create share certificates for shareholders
> Print compliant resolutions and board minutes
> Automated updates to statutory registers
> Easy confirmation statements
1 Provide the applicants with a form of application
Firstly, you need to offer the shares to the intended recipients. This can be done verbally or in writing. For a private company, it must be done in such a way that it’s not regarded as an invitation to the public to subscribe for shares.
Those people wishing to apply for shares will complete an appropriate application for new shares. They should return this to the company along with the payment required for the shares.
2 Shares are allotted via board resolution
You should convene a board meeting at which the directors will consider the forms of application received. You can adapt our template board resolution to issue shares to your circumstances, including removing any sections that don’t appl. This will then form part of the minutes of the meeting. When allotting shares using Inform Direct, you can produce a fully pre-populated directors’ resolution or board minute at the touch of a button.
At the very least, the resolution should:
- Approve the applications for shares received
- Authorise the allotment of shares and say who they’re being allotted to
- Instruct the required form(s) to be submitted to Companies House
- Authorise the issue of share certificates for the new shareholdings
- Instruct the required updates to the register of members and register of allotments
The allotment of shares formally occurs when authority to enter the name of the allottee in the register of members is granted, after the directors resolve to issue shares.
3 Issue share certificates to those who have been allotted shares
Companies generally issue share certificates in respect of the shares allotted. By and large it’s something that shareholders will expect the company to do. Elsewhere we’ve looked at the requirements for share certificates. Inform Direct will create and save share certificates automatically when you allot shares, ready for you to print them.
an application for shares only becomes binding on a new shareholder when the company notifies him that it accepts the application
As far as the requirements of the Companies Act apply, the share certificates should be issued within two months of the share allotment. Most companies will, however, want to issue share certificates a lot quicker than that. That’s because an application for shares only becomes binding on a new shareholder when the company notifies him that it accepts the application. Until that time, it’s entirely possible for the potential shareholder to withdraw the application, a situation the company will obviously want to avoid!
You can amend our template formal notification of allotment letter. This should be sent to the applicants with their share certificates. All letters of allotment should be posted at the same time.
4 Complete a return of allotments via form SH01 to Companies House
Within a month of the date of the share allotment, form SH01 must be delivered to Companies House. This form includes a ‘statement of capital‘: this describes the overall structure of a company’s shares and how much (if anything) is left unpaid on them.
The SH01 form does not require details of the shareholders to whom shares have been issued, just the shares themselves. However, you’ll need to include details of who owns how many shares in the company’s next confirmation statement – which we look at below.
For more details, including what to do if the company has done a series of allotments, take a look at our article dedicated to the SH01 form.
5 Update the register of members and register of allotments
It’s good practice to update the register of members promptly. This is the primary evidence of who owns shares in the company – someone effectively becomes a shareholder when their name is entered into the register of members. However, in law the deadline for updating the register of members is two months following the board approving the allotment.
The company should also update the register of allotments with details of each separate allotment of shares. Even if someone already has shares in the company, you’ll need to add a new line into the register of allotments to reflect the new shares you’ve issued to them.
When you process share allotments in Inform Direct, all of the updates to your online statutory registers are completely automatic. That saves you the time and effort of recording them separately.
6 Include the allotments in the company’s next confirmation statement
It is only the form SH01 that needs to be sent to Companies House. New share certificates do not need to be lodged at Companies House: they are simply sent to the shareholders. However, form SH01 only includes details of the shares allotted and not the shareholders. Therefore, the names of the new shareholders must be included in the company’s next confirmation statement. If you complete allotments in Inform Direct, your next confirmation statement will automatically be populated with the appropriate details.
some companies choose to file their confirmation statement early
Making allotments does not change when the next confirmation statement is due. However, some companies choose to file their next statement early. By doing so, and submitting full details of shareholders and their shareholdings to Companies House, the people who’ve been allotted shares may gain comfort that everything has been processed correctly. In fact, some investors may demand it as part of purchasing shares in the company.
However, regardless of what is currently shown on the Companies House record, in legal terms the true position is that reflected in the register of members.
7 Show the new shares issued within the company’s accounts
You’ll need to liaise with your accountant to ensure that the new share allotments are correctly reflected in the company’s accounts for the period.
When the company issues new shares, it increases the level of shareholders’ funds shown in the balance sheet. Within the balance sheet itself, there is different treatment given to the total amounts raised in respect of the nominal value of shares and share premium:
The nominal, par or face value of the shares is the minimum that shareholders will pay (assuming the shares are fully paid). So, for example, a £1 ordinary share will have a nominal value of £1.
The total of these amounts across all share allotments will be shown under “Called up share capital” in the balance sheet.
Share premium is the amount that has been paid by shareholders above the nominal value of shares. So, for example, if a £1 ordinary share is allotted for £4, the share premium will be £3.
If shares are issued at a premium, the company must set up a share premium account. Rather than a physical bank account, this is another balance sheet entry. The total amount of share premium across the allotments must be added to the share premium account.
When issuing shares in Inform Direct, you can also produce lots of useful documents
A previous version of this article was first published on 20 June 2014.