ACCA F4 - Corp and Business Law (ENG)

236 15: Share capital  Part E Capital and the financing of companies

4.3 Private company allotment of shares

The allotment of shares in a private company is more straightforward. The rule to remember is that

private companies cannot sell shares to the public. An application must be made to the directors directly.

After that shares are allotted and issued, and a return of allotment made to the Registrar, as for a public

company.

4.3.1 Directors' powers to allot shares

Directors of private companies with one class of share have the authority to allot shares unless

restricted by the articles.

Directors of public companies or private companies with more than one class of share may not allot

shares (except to subscribers to the memorandum and to employees' share schemes) without authority

from the members. Any director who allots shares without authority commits an offence under the

Companies Act 2006 and may be fined. However, the allotment remains valid.

4.4 Pre-emption rights

If the directors propose to allot 'equity securities' wholly for cash, there is a general requirement to offer

these shares to holders of similar shares in proportion to their holdings.

Pre-emption rights are the rights of existing ordinary shareholders to be offered new shares issued by the

company pro rata to their existing holding of that class of shares.

If a company proposes to allot ordinary shares wholly for cash, it has a statutory obligation to offer those

shares first to holders of similar shares in proportion to their holdings and on the same or more

favourable terms as the main allotment. This is known as a rights issue.

4.5 Rights issues

A rights issue is a right given to a shareholder to subscribe for further shares in the company, usually pro

rata to their existing holding in the company's shares.

A rights issue must be made in writing (hard copy or electronic) in the same manner as a notice of a

general meeting is sent to members. It must specify a period of not less than 21 days during which the

offer may be accepted but may not be withdrawn. If not accepted or renounced in favour of another

person within that period the offer is deemed to be declined.

Equity securities which have been offered to members in this way but are not accepted may then be

allotted on the same (or less favourable) terms to non-members. If equity securities are allotted in breach

of these rules the members to whom the offer should have been made may within the ensuing two years

recover compensation for their loss from those in default. The allotment will generally be valid.

4.5.1 Exclusion of pre-emption rights

A private company may by its articles permanently exclude these rules so that there is no statutory right

of first refusal.

4.5.2 Disapplication of pre-emption rights

Any company may, by special resolution resolve that the statutory right of first refusal shall not apply.

Such a resolution to 'disapply' the right may either:

(a) Be combined with the grant to directors of authority to allot shares, or

(b) Simply permit an offer of shares to be made for cash to a non-member (without first offering the

shares to members) on a particular occasion

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