Companies require capital to enable them to undertake their activities. The most common way for companies to raise capital is by issuing shares to their shareholders. Before issuing new shares, some care needs to be taken as:-
(i) There may be restrictions in the Articles regarding the issue of shares.
(ii) There are rules about making offers to the public in s45 of the Act.
(iii) existing shareholders may enjoy pre-emption rights gives them a priority over the issue of any new shares before they can be issued to new shareholders.
The steps below outlines the basic process for the issue of new shares:
Step 1 – Negotiate terms with the proposed new shareholder (applicant) for the issue of shares. ie the number of shares and the consideration to be paid for them.
Step 2 – The applicant should prepare a letter of application, addressed to the Company, applying for the shares and detailing the relevant terms.
Step 3 – Convene a Directors meeting for the purpose of considering the application and, if thought fit, approving the allotment of shares to the applicant. See draft minutes – Minutes – Share allotment (2006)
Step 4 – The Registered Agent should update the register of members and any necessary share certificates should be issued.
Step 5 – File the original board minute together with the application letter in the company’s statutory records.