To raise money, a company will allot more shares. There are three questions to consider before doing so.
- Whether there are any constitutional restrictions on allotment. For example, the company’s constitution might limit the number of shares that can be issued.
- Do the directors have the authority to allot shares? Under section 550 of the Companies Act 2006, directors do not need their shareholders’ permission to do so, but in companies incorporated before the Act, shareholders may need to pass a resolution to activate s550.
- Are there any pre-emption rights? Section 561 of the Companies Act requires the company to offer shares to existing shareholders on equal or more favourable terms, unless such pre-emption rights are expressly excluded in the company’s articles of association.