Authorised share capital is the maximum amount of shares which a company can issue. Issued share capital is the amount of shares issued (or allotted) directly from the company to shareholders. They are called allotted because they are being issued for the first time rather than being transferred from one party to another. In Ireland, directors need to be given the power to allot shares.
Directors’ Authority To Allot Shares
Directors are given the authority to allot shares in two ways. Firstly, the Articles of Association can vest authority in directors to allot shares. Secondly, and more commonly, a decision is made at a general meeting. According to Section 20 (3) of the Companies Amendment Act 1983, authority given to a director to allot shares at a general meeting must state the maximum amount of shares to be allotted and an expiry date of the power. The expiry date can not be more than five years from the date of incorporation of the company or the date of the resolution. However, authority can be renewed by the shareholders.
If the company is likely to make frequent allotments, the company secretary should consider advising the directors to add a decision on giving the directors authority to allot shares at each AGM. The authority may have conditions attached such as the share price, the purpose of the allotment or the identity of the purchasers.
A company must have enough unissued authorised share capital to make up the new allotment. Otherwise a special resolution of the member’s will be needed to increase the authorised share capital or to set up a new share class.
The Memorandum and Articles of Association and any shareholder agreements should be reviewed for regulations on pre-emption rights, unissued share capital, and other provisions that may affect the allotment of shares. The shares may be allotted for cash, non-cash and may be allotted at a premium.
In terms of pre-emption rights, Section 23 of the Companies (Amendment) Act 1983 obliges companies to give an existing shareholder a right of first refusal in respect of new shares. The number of shares an existing shareholder has a right of refusal over is calculated in proportion to his/her existing holding. Section 23 is quite cumbersome and is often omitted from the Memorandum and Articles of Association of private companies.
The new shareholders must apply for shares to be allotted to them; the directors must approve the allotment of shares, write up the Register of Allotments and Register of Members and file the form B5 with the CRO. New share certificates should be issued to the new shareholders.
We have seen that directors of Irish companies can be given authority to allot shares by the shareholders, either in the Memorandum and Articles of Association’s or in a general meeting. Even where the directors and the shareholders are the same people, the procedures for allotting shares must be followed.