Share capital — allotment, transfer, maintenance of capital

BLP.07 — Share Capital: Allotment, Transfer, Maintenance of Capital

Allotment (issuing new shares) — Companies Act 2006

Work through the gates in order:

1. Cap on allotment? A company formed under CA 2006 has no authorised share capital limit by default (abolished). Check the articles for any cap.
2. Authority to allot (s.551). Directors of a company with more than one class of shares need authority — by ordinary resolution or in the articles. A private company with only one class can allot without authority unless the articles restrict it (s.550) — a key SQE distinction.
3. Pre-emption (s.561). New shares for cash must first be offered to existing shareholders pro rata. Disapply by special resolution (s.570/571). Private companies with one class may exclude/disapply pre-emption in the articles (s.567/569). Does not apply to non-cash consideration or to shares under an employees' share scheme.
4. Administration. Allot, then file form SH01 and update the register of members and PSC register; shares are issued when the name is entered in the register of members.

Shares must not be allotted at a discount to nominal value (s.580). Any premium goes to the share premium account (s.610).

Transfer (existing shares)

• Need a stock transfer form + share certificate; stamp duty at 0.5% if consideration over £1,000 (rounded up to nearest £5).
• Transfer is effective once the buyer is entered in the register of members (legal title passes then, not on signing).
• Directors may have power to refuse to register (check articles, e.g. Model Article 26).

Maintenance of capital — creditor protection

General rule: a company must not return capital to members. Key routes/exceptions:

• Dividends only out of distributable profits (Part 23).
• Buyback of own shares (s.690): out of distributable profits or fresh issue proceeds; private companies may buy back out of capital (ss.709–723) with directors' solvency statement + special resolution + auditor's report + Gazette/creditor notice.
• Reduction of capital (s.641): private company = special resolution + solvency statement (no court needed); public company needs court confirmation.
• Financial assistance: prohibited for public companies (s.678) acquiring their own/holding-company shares; the prohibition was abolished for private companies.

Common traps

• Confusing s.550 (one class, no authority needed) with s.551 (authority needed).
• Forgetting pre-emption only bites on cash allotments.
• Resolution levels: allotment authority = ordinary; disapplying pre-emption / reduction / capital buyback = special.
• Stamp duty £1,000 threshold and 0.5% rate are on transfers, not allotments (no stamp duty on fresh issues).