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Vincent2013
Vincent2013, JustAnswer Expert
Category: Law
Satisfied Customers: 213
Experience:  Qualified solicitor and barrister (non-practising) with 7+ years experience
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Do the directors of a private limited company require shareholder

Customer Question

Do the directors of a private limited company require shareholder approval in advance of a Rights Issue?
Submitted: 3 years ago.
Category: Law
Expert:  Vincent2013 replied 3 years ago.

Vincent2013 :

Hi, thanks very much for your question. My name's XXXXX XXXXX I'm going to assist you with it.

Vincent2013 :

Could you please let me know how many classes of shares there are and when the company was incorporated.

Vincent2013 :

Apologies if this is repetition but could you please let me know how many classes of shares there are and when the company was incorporated.


Expert:  Vincent2013 replied 3 years ago.

I have switched to the Q&A interface, in case you are having difficulty with the "chat" mode.

Customer: replied 3 years ago.

The company was incorporated in early 90s and has only one class of share.

Expert:  Vincent2013 replied 3 years ago.
Thanks for that. Do you know what the articles state regarding share capital? Is there sufficient authorised and unissued share capital for the issue?
Customer: replied 3 years ago.

There is adequate authorised and unissued share capital.

Expert:  Vincent2013 replied 3 years ago.

Thanks for that, Peter. If there is sufficient headroom, the principal other situation in which a shareholders' resolution will be required is if the directors are not currently authorised to allot shares. To check if such resolutions are necessary, the directors will need to review the articles and subsequent resolutions.

 

Any authority to allot shares within the original articles of a company incorporated in the 90's will have been provided in accordance with the Companies Act 1985 and will now be redundant (as such authority would only have lasted for a maximum of 5 years). For the directors to have current authority it will, therefore, need to have been renewed or provided via a later resolution (or amended articles).

 

If it has been renewed, such authority will now be classed a s.551 authority (under the Companies Act 2006) and be subject to the same maximum time restriction (5 years) along with any further restrictions in accordance with its terms and the articles.

 

Further, whilst under section 550 of the 2006 Act, directors of companies with a single class of share can allot shares without a shareholder resolution (subject to any restrictions in the articles), this section does not automatically apply to a limited company incorporated under the 1985 Act. Instead, older companies will need to have passed an ordinary resolution adopting section 550 to take advantage of it. In the absence of an expiry date, this authority can last indefinitely.


Thus, if the directors have either a current section 551 authority or have adopted section 550, they will (subject to any additional restrictions in the articles which have not been revoked) be permitted to allot shares without a further resolution. I should also point out that, under the 2006 Act, authorised share capital is no longer required but, if a company retains an authorised share capital in the mem/arts, any authority will be automatically restricted up to that amount.

 

Of course, any shareholders' agreements should also be checked for additional contractual shareholder consents for share allotments. It also goes without saying that any issue by a private company should obviously not involve an offer to the public for the purposes of section 755 of the 2006 Act (or section 85 of the Financial Services and Markets Act 2000).

 

I hope that's helpful. Can I clarify anything?

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