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. For 1931 Act companies some care needs to be taken before issuing shares as:-
(i) Companies may have limited authorised capital which can limit the number of shares available for issue and
(ii) 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 (1931)
Step 4 – The Company secretary should update the register of members and any necessary share certificates should be issued.
Step 5 – a return of allotments Form 45 should be prepared, signed and filed at the Company Registry.
Step 6 – File the original board minute together with the application letter and the Form 45 in the company’s statutory records.