Company Law Reform Bill [HL] (271-277)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (271-277)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 2 — Allotment of shares: general provisions
271

565
Power of directors to allot shares etc: authorisation by company
(1)
The directors of a company may exercise a power of the company—
(a)
to allot shares in the company, or
(b)
to grant rights to subscribe for or to convert any security into shares in
the company,
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if they are authorised to do so by the company’s articles or by resolution of the
company.
(2)
Authorisation may be given for a particular exercise of the power or for its
exercise generally, and may be unconditional or subject to conditions.
(3)
Authorisation must—
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(a)
state the maximum amount of shares that may be allotted under it, and
(b)
specify the date on which it will expire, which must be not more than
five years from—
(i)
in the case of authorisation contained in the company’s articles
at the time of its original incorporation, the date of that
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incorporation;
(ii)
in any other case, the date on which the resolution is passed by
virtue of which the authorisation is given.
(4)
Authorisation may—
(a)
be renewed or further renewed by resolution of the company for a
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further period not exceeding five years, and
(b)
be revoked or varied at any time by resolution of the company.
(5)
A resolution renewing authorisation must—
(a)
state (or restate) the maximum amount of shares that may be allotted
under the authorisation or, as the case may be, the amount remaining
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to be allotted under it, and
(b)
specify the date on which the renewed authorisation will expire.
(6)
In relation to rights to subscribe for or to convert any security into shares in the
company, references in this section to the maximum amount of shares that may
be allotted under the authorisation are to the maximum amount of shares that
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may be allotted pursuant to the rights.
(7)
The directors may allot shares, or grant rights to subscribe for or to convert any
security into shares, after authorisation has expired if—
(a)
the shares are allotted, or the rights are granted, in pursuance of an
offer or agreement made by the company before the authorisation
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expired, and
(b)
the authorisation allowed the company to make an offer or agreement
which would or might require shares to be allotted, or rights to be
granted, after the authorisation had expired.
(8)
A resolution of a company to give, vary, revoke or renew authorisation under
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this section may be an ordinary resolution, even though it amends the
company’s articles.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 2 — Allotment of shares: general provisions
272

Prohibition of commissions, discounts and allowances
566
General prohibition of commissions, discounts and allowances
(1)
Except as permitted by section 567 (permitted commission), a company must
not apply any of its shares or capital money, either directly or indirectly, in
payment of any commission, discount or allowance to any person in
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consideration of his—
(a)
subscribing or agreeing to subscribe (whether absolutely or
conditionally) for shares in the company, or
(b)
procuring or agreeing to procure subscriptions (whether absolute or
conditional) for shares in the company.
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(2)
It is immaterial how the shares or money are so applied, whether by being
added to the purchase money of property acquired by the company or to the
contract price of work to be executed for the company, or being paid out of the
nominal purchase money or contract price, or otherwise.
(3)
Nothing in this section affects the payment of such brokerage as has previously
15
been lawful.
567
Permitted commission
(1)
A company may, if the following conditions are satisfied, pay a commission to
a person in consideration of his subscribing or agreeing to subscribe (whether
absolutely or conditionally) for shares in the company, or procuring or
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agreeing to procure subscriptions (whether absolute or conditional) for shares
in the company.
(2)
The conditions are—
(a)
the payment of the commission is authorised by the company’s articles;
(b)
the commission paid or agreed to be paid does not exceed—
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(i)
10% of the price at which the shares are issued, or
(ii)
the amount or rate authorised by the articles,

whichever is the less.
(3)
A vendor to, or promoter of, or other person who receives payment in money
or shares from, a company may apply any part of the money or shares so
30
received in payment of any commission the payment of which directly by the
company would be permitted by this section.
Registration of allotment
568
Registration of allotment
(1)
A company must register an allotment of shares as soon as practicable and in
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any event within two months after the date of the allotment.
(2)
This does not apply if the company has issued a share warrant in respect of the
shares (see section 789).
(3)
If a company fails to comply with this section, an offence is committed by—
(a)
the company, and
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(b)
every officer of the company who is in default.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 2 — Allotment of shares: general provisions
273

(4)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
continued contravention, a daily default fine not exceeding one-tenth of level
2 on the standard scale.
(5)
For the company’s duties as to the issue of share certificates etc, see Part 22
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(certification and transfer of securities).
Return of allotment
569
Return of allotment by limited company
(1)
This section applies to a company limited by shares and to a company limited
by guarantee and having a share capital.
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(2)
The company must, within one month of making an allotment of shares,
deliver to the registrar for registration a return of the allotment.
(3)
The return must—
(a)
contain the prescribed information, and
(b)
be accompanied by a statement of capital.
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(4)
The statement of capital must state with respect to the company’s share capital
at the date to which the return is made up—
(a)
the total number of shares of the company,
(b)
the aggregate nominal value of those shares,
(c)
for each class of shares—
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(i)
prescribed particulars of the rights attached to the shares,
(ii)
the total number of shares of that class, and
(iii)
the aggregate nominal value of shares of that class, and
(d)
the amount paid up and the amount (if any) unpaid on each share
(whether on account of the nominal value of the share or by way of
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premium).
570
Return of allotment by unlimited company allotting new class of shares
(1)
This section applies to an unlimited company that allots shares of a class with
rights that are not in all respects uniform with shares previously allotted.
(2)
The company must, within one month of making such an allotment, deliver to
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the registrar for registration a return of the allotment.
(3)
The return must contain the prescribed particulars of the rights attached to the
shares.
(4)
For the purposes of this section shares are not to be treated as different from
shares previously allotted by reason only that the former do not carry the same
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rights to dividends as the latter during the twelve months immediately
following the former’s allotment.
571
Offence of failure to make return
(1)
If a company makes default in complying with—
section 569 (return of allotment of shares by limited company), or
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Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 3 — Allotment of equity securities: existing shareholders’ right of pre-emption
274

section 570 (return of allotment of new class of shares by unlimited
company),

an offence is committed by every officer of the company who is in default.
(2)
A person guilty of an offence under this section is liable—
(a)
on conviction on indictment, to a fine;
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(b)
on summary conviction, to a fine not exceeding the statutory maximum
and, for continued contravention, a daily default fine not exceeding
one-tenth of the statutory maximum.
(3)
In the case of default in delivering to the registrar within one month after the
allotment the return required by section 569 or 570—
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(a)
any person liable for the default may apply to the court for relief, and
(b)
the court, if satisfied—
(i)
that the omission to deliver the document was accidental or due
to inadvertence, or
(ii)
that it is just and equitable to grant relief,
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may make an order extending the time for delivery of the document for
such period as the court thinks proper.
Supplementary provisions
572
When shares are allotted
For the purposes of the Companies Acts shares in a company are taken to be
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allotted when a person acquires the unconditional right to be included in the
company’s register of members in respect of the shares.
573
Provisions about allotment not applicable to shares taken on formation
The provisions of this Chapter have no application in relation to the taking of
shares by the subscribers to the memorandum on the formation of the
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company.
Chapter 3
Allotment of equity securities: existing shareholders’ right of pre-emption
Introductory
574
Meaning of “equity securities” and related expressions
30
(1)
In this Chapter—
“equity securities” means—
(a)
ordinary shares in the company, or
(b)
rights to subscribe for, or to convert securities into, ordinary
shares in the company;
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“ordinary shares” means shares other than shares that as respects
dividends and capital carry a right to participate only up to a specified
amount in a distribution.
(2)
References in this Chapter to the allotment of equity securities include—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 3 — Allotment of equity securities: existing shareholders’ right of pre-emption
275

(a)
the grant of a right to subscribe for, or to convert any securities into,
ordinary shares in the company, and
(b)
the sale of ordinary shares in the company that immediately before the
sale are held by the company as treasury shares.
Existing shareholders’ right of pre-emption
5
575
Existing shareholders’ right of pre-emption
(1)
A company must not allot equity securities to a person on any terms unless—
(a)
it has made an offer to each person who holds ordinary shares in the
company to allot to him on the same or more favourable terms a
proportion of those securities that is as nearly as practicable equal to the
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proportion in nominal value held by him of the ordinary share capital
of the company, and
(b)
the period during which any such offer may be accepted has expired or
the company has received notice of the acceptance or refusal of every
offer so made.
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(2)
Securities that a company has offered to allot to a holder of ordinary shares
may be allotted to him, or anyone in whose favour he has renounced his right
to their allotment, without contravening subsection (1)(b).
(3)
If subsection (1) applies in relation to the grant of such a right, it does not apply
in relation to the allotment of shares in pursuance of that right.
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(4)
Shares held by the company as treasury shares are disregarded for the
purposes of this section, so that—
(a)
the company is not treated as a person who holds ordinary shares, and
(b)
the shares are not treated as forming part of the ordinary share capital
of the company.
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(5)
This section is subject to—
(a)
sections 578 to 580 (exceptions to pre-emption right),
(b)
sections 581 and 582 (exclusion of rights of pre-emption),
(c)
sections 583 to 587 (disapplication of pre-emption rights), and
(d)
section 590 (saving for certain older pre-emption procedures).
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576
Communication of pre-emption offers to shareholders
(1)
This section has effect as to the manner in which offers required by section 575
are to be made to holders of a company’s shares.
(2)
The offer may be made in hard copy or electronic form.
(3)
If the holder is the holder of a share warrant, the offer may be made by causing
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it, or a notice specifying where a copy of it can be obtained or inspected, to be
published in the Gazette.
(4)
The offer must state a period of not less than 21 days during which it may be
accepted and the offer shall not be withdrawn before the end of that period.
(5)
The Secretary of State may by regulations made by statutory instrument—
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(a)
reduce the period specified in subsection (4) (but not to less than 14
days), or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 3 — Allotment of equity securities: existing shareholders’ right of pre-emption
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(b)
increase that period.
(6)
A statutory instrument containing regulations made under subsection (5) is
subject to affirmative resolution procedure.
577
Liability of company and officers in case of contravention
(1)
This section applies where there is a contravention of—
5
section 575 (existing shareholders’ right of pre-emption), or
section 576 (communication of pre-emption offers to shareholders).
(2)
The company and every officer of it who knowingly authorised or permitted
the contravention are jointly and severally liable to compensate any person to
whom an offer should have been made in accordance with those provisions for
10
any loss, damage, costs or expenses which the person has sustained or incurred
by reason of the contravention.
(3)
No proceedings to recover any such loss, damage, costs or expenses shall be
commenced after the expiration of two years—
(a)
from the delivery to the registrar of companies of the return of
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allotment, or
(b)
where equity securities other than shares are granted, from the date of
the grant.
Exceptions to right of pre-emption
578
Exception to pre-emption right: bonus shares
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Section 575(1) (existing shareholders’ right of pre-emption) does not apply in
relation to—
(a)
the allotment of bonus shares, or
(b)
the grant of a right to subscribe for, or to convert securities into, bonus
shares.
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579
Exception to pre-emption right: issue for non-cash consideration
Section 575(1) (existing shareholders’ right of pre-emption) does not apply to a
particular allotment of equity securities if these are, or are to be, wholly or
partly paid up otherwise than in cash.
580
Exception to pre-emption right: securities held under employees’ share
30
scheme
Section 575 (existing shareholders’ right of pre-emption) does not apply to the
allotment of securities that would, apart from any renunciation or assignment
of the right to their allotment, be held under an employees’ share scheme.
Exclusion of right of pre-emption
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581
Exclusion of requirements by private companies
(1)
All or any of the requirements of—
(a)
section 575 (existing shareholders’ right of pre-emption), or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 18 — A company’s share capital
Chapter 3 — Allotment of equity securities: existing shareholders’ right of pre-emption
277

(b)
section 576 (communication of pre-emption offers to shareholders)

may be excluded by provision contained in the articles of a private company.
(2)
They may be excluded—
(a)
generally in relation to the allotment by the company of equity
securities, or
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(b)
in relation to allotments of a particular description.
(3)
Any requirement or authorisation contained in the articles of a private
company that is inconsistent with either of those sections is treated for the
purposes of this section as a provision excluding that section.
(4)
A provision to which section 582 applies (exclusion of pre-emption right:
10
corresponding right conferred by articles) is not to be treated as inconsistent
with section 575.
582
Exclusion of pre-emption right: articles conferring corresponding right
(1)
The provisions of this section apply where, in a case in which section 575
(existing shareholders’ right of pre-emption) would otherwise apply—
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(a)
a company’s articles contain provision (“pre-emption provision”)
prohibiting the company from allotting ordinary shares of a particular
class unless it has complied with the condition that it makes such an
offer as is described in section 575(1) to each person who holds ordinary
shares of that class, and
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(b)
in accordance with that provision—
(i)
the company makes an offer to allot shares to such a holder, and
(ii)
he or anyone in whose favour he has renounced his right to
their allotment accepts the offer.
(2)
In that case, section 575 does not apply to the allotment of those shares and the
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company may allot them accordingly.
(3)
The provisions of section 576 (communication of pre-emption offers to
shareholders) apply in relation to offers made in pursuance of the pre-emption
provision of the company’s articles.

This is subject to section 581 (exclusion of requirements by private companies).
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(4)
If there is a contravention of the pre-emption provision of the company’s
articles, the company, and every officer of it who knowingly authorised or
permitted the contravention, are jointly and severally liable to compensate any
person to whom an offer should have been made under the provision for any
loss, damage, costs or expenses which the person has sustained or incurred by
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reason of the contravention.
(5)
No proceedings to recover any such loss, damage, costs or expenses may be
commenced after the expiration of two years—
(a)
from the delivery to the registrar of companies of the return of
allotment, or
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(b)
where equity securities other than shares are granted, from the date of
the grant.