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Issuing shares FAQ

See how to allocate and issue shares

Issuing shares FAQ

How must shares be allocated to shareholders?

Shares are allocated to shareholders by a system called 'allotment', whereby people become members of a company. Members take shares when a company is formed ('incorporated') and the shares are regarded as 'allotted' to each member. New members can later be allotted shares, but only with the authority of existing shareholders. This authority comes from either a company's articles of association or a resolution passed at a general company meeting.

A public or private company can give authority to allot shares for up to five years by an ordinary resolution. Additionally, a private company can pass an elective resolution for any fixed period. Ordinary and elective resolutions about allotting shares must be delivered to Companies House within 15 days of being passed.

Form 88(2) must be completed and sent to the Registrar at Companies House when any allotment of shares is made.

For further information see Companies House web site.

Relevant Online Forms

Form 88(2) (English and Welsh versions) is available from Companies House.

What rules govern autorised share capital?

Share capital is the total amount of shares issued by a company. A memorandum of association, which is needed for a limited company to form, states this amount and how it is divided into individual shares of a set amount, such as 10p a share. The amount in the memorandum is called the authorised capital.

Members of a company must take at least some shares when their company is registered, making them subscribers. A memorandum of association lists the people owning shares and the number they own.

There are no upper or lower limits on authorised share capital for private limited companies, but a public limited company (plc) must have an authorised share capital of at least �50,000. A plc must complete Form 117 stating its share capital meets the minimum requirements.

A company can increase its authorised share capital by passing an ordinary resolution at a general meeting. A copy of the resolution and Form 123 detailing the proposed increase must reach Companies House within 15 days of being passed.

A company can decrease its authorised share capital by passing an ordinary resolution to cancel some shares. Notice of the cancellation is formally given on Form 122, and must reach Companies House within one month.

For further information see Companies House web site.

Relevant Online Forms

Form 123 is available from Companies House.

What must a company do when shares are issued for the first time?

Under the Financial Services Act 1986, as amended by the Official Listing of Securities (Change of Competent Authority) Regulations 2000, and in the Listing Rules of the Financial Service Authority (FSA), if securities are to be offered to the public in the UK for the first time before admission, the Listing Rules require that a prospectus is submitted to, and approved by, the FSA and that the prospectus is published.

An offer will be treated as being made to the public if it is made to any section of the public, whether chosen as already being members or debenture holders of the company, or as clients of the person issuing the prospectus, or in any other manner. There are exceptions to the rule, detailed in the Act.

Section 81 of the Companies Act prohibits a private limited company (unless limited by guarantee and without share capital) from making public offers. Generally, therefore, only a public limited company can issue a prospectus. A prospectus must be registered at Companies House on or before the day of its publication. The law requires only one copy to be delivered. Any supplementary prospectus adding to or correct the information in the original document must also be delivered immediately to the Registrar. Companies incorporated outside the United Kingdom which offer securities within the UK must also send a copy of their prospectus to the Registrar.

For further information see Companies House web site.

Relevant Online Forms

Forms are available from Companies House, and some are in Welsh.

What are debentures?

A debenture is a document that is issued as evidence of the terms of a loan made to a company, although there is no set legal definition of the term. According to section 735 of the Companies Act, the term includes "debenture stock, bonds and other securities of a company whether constituting a charge on the assets of a company or not".

Debentures are normally issued under the company's seal and make provisions for the repayment of a loan on a particular date, and interest payments to be made to the debenture holder at specified intervals. In addition debentures create a form of security to the lender, entitling them to certain rights if the company does not meet its payments.

Types of debenture include:

Income debenture The company's repayment terms depend on its earning sufficient profits

Irredeemable debenture Which may only be redeemed if the company is wound up or if there's a breach of a condition of its issue

Registered debenture In which the lender is entered in the register of debenture holders available for inspection by debenture holders and others

Bearer debenture Similar to a registered debenture but is stated to be payable to bearer

For further information see Companies House web site.

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