Issue and allotment of shares

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What is the difference between an issue and an allotment of shares?

The issued and allotted share capital of a company is the total amount of share capital that is actually in the hands of shareholders. “Issue” and “allotment “are used to describe the process of granting new shares in a company. “Allotment” refers to the moment when a person acquires the unconditional right to be a shareholder while “issue” refers to the process by which a person takes shares in a company. In practice, shares are often allotted and issued almost simultaneously, so the two terms seem to be used interchangeably.

How many shares am I required to issue when incorporating a company?

On the formation of a company, at least one share will automatically be allotted to the subscribers to the memorandum. It is not compulsory to issue further shares, however, it is likely that at some point a company will need or wish to do so.

As a shareholder, do I have the right to issue new shares?

New shares are created by shareholders, however, the directors have the right to issue and allot them. Shares can be issued for a variety of reasons such as:

• To directors or employees to give them a stake in the growth of the company
• To investors in return for them financing the company
• To family members of existing shareholders, spreading wealth across a family

It is important to know that new companies are required to notify Companies House of each new allotment of shares and the rights attached to them by filling a return of allotment. The company has to make additional fillings if either the name or the rights attached to the shares change.

What is the difference between nominal, par and market value of shares?

There are various terms used to describe the share value. The value attributable to the proportion of share capital is known as the “nominal” or “par” value“. For example, if the share capital of a company is £100 divided into 100 shares of £1, each share has a nominal or par value of £1.

When a share is allotted, the shareholder may pay or agree to pay just the nominal value. Any extra payment above the nominal value of the share is referred to as the “premium”. The nominal value together with any premium is the “subscription” price of the share.

The market value of a share, on the other hand, is the amount a willing purchaser would pay for it. This amount can be either higher or lower than the nominal value.

What does “paying up” mean?

Paying up” means paying all or part of the subscription price (the nominal value together with any premium) of a share to the company that issued it. Shares can be:

Fully paid-up – the full subscription price of a share has been paid
Partly paid-up – only some of the subscription price of a share has been paid
Ni-paid – none of the subscription price has been paid

Private companies limited by shares can only have fully paid-up shares. Public companies are able to issue partly paid shares; however, there are a variety of restrictions on the paying up of those shares.

Do shares have to be fully paid up on allotment?

It is not obligatory for the shares to be fully paid up on allotment. The liability to pay can be left to be fulfilled in the future. In spite of the fact that shares can be issued as partly or nil-paid, it is recommended that shares are fully paid up on allotment. The main benefits of fully paying up are as follows:

• As the company is limited by shares, it follows that a holder of fully-paid shares has no further liability regarding their holding. Shareholders with partly or nil-paid shares remain liable to pay the unpaid amount.
Partly or nil-paid shares may have restricted share rights as sometimes they depend on the amount paid up on a share. For example, if dividends are declared pro rata on the amounts paid up on a share, a share with nominal value of £1 where only 50p had been paid up would be entitled to half the dividend declared on that share. In this case, nil-paid shares would be entitled to no dividend at all.

If you have any questions or queries related to issue and allotment of shares or company formations in general, we are available for a live chat or you can leave a message on our Support & Contact web page and we will get back to you.