How to issue shares in United Kingdom corporations

Allotment authority under ss. 549 and 550

UK share issuance is split into two steps: allotment (the directors grant the right to be entered in the register of members) and issue (the person is entered in the register and becomes a member). Allotment authority is governed by CA 2006 s. 549: directors may not allot shares except as authorized by the articles or by the company in general meeting. Section 550 simplifies this for private companies with one class of shares: directors are taken to have authority to allot shares of that class unless prohibited by the articles.

Pre-emption rights under s. 561

CA 2006 s. 561 establishes a statutory pre-emption right: ordinary shares allotted for cash must first be offered to existing holders of ordinary shares pro-rata to their holdings. The pre-emption right defaults ON. To disapply pre-emption rights, the company passes a special resolution under s. 570 (general disapplication) or s. 571 (specific disapplication). Most UK private financings include a special resolution disapplying pre-emption rights to permit the allotment to new investors.

Return of allotments (SH01) and Companies House filing under s. 555

Within 1 month of an allotment, the company must file a return of allotments on Form SH01 with Companies House under CA 2006 s. 555. The return identifies the allottee, the number and class of shares, the consideration, and any premium. Failure to file within 1 month is a criminal offence under s. 557 (rarely prosecuted but the filing must be made eventually). The SH01 is the principal UK-specific procedural step that has no direct US or Canadian equivalent at the federal level.

Register of members under s. 113

CA 2006 s. 113 requires every UK company to maintain a register of members listing every member's name, address, the date of registration, the number and class of shares, and (for shares not fully paid) the amount remaining due. The register is the controlling record of membership; allotment is effective as against the member when the name is entered in the register. The register may be kept in any form (s. 1135 permits digital records).

PSC register under Part 21A and SEIS/EIS considerations

The People with Significant Control register under CA 2006 Part 21A (effective April 2016) requires UK companies to maintain a register of persons with significant control: typically beneficial owners of 25%+ shares or voting rights. PSC information is filed with Companies House as part of the annual confirmation statement (s. 853A). For SEIS/EIS qualifying share issuances, additional HMRC compliance applies: the company must apply for advance assurance, file SEIS1/EIS1 within 2 years of issue, and the shares must be paid for in cash and held by the qualifying investor.

Common mistakes

Common UK-specific failure points in share issuance:

• Not disapplying pre-emption rights before a new-investor allotment (the existing shareholders' statutory right of first refusal under s. 561 controls)
• Failing to file SH01 within 1 month of allotment (CA 2006 s. 555)
• Treating allotment and issue as the same event (legal effect runs from register entry)
• Not maintaining the PSC register or filing PSC information with the annual confirmation statement