Ordinary Resolution Clause – authority to allot shares

What is an ordinary resolution clause for authority to allot shares and when should you use it?

This Shareholders’ Ordinary Resolution – Authority to Allot New Shares gives the directors a general authority to allot (issue) shares up to a specified maximum and subject to an expiry date limited to a maximum of five years.

Section 69 of the Companies Act deals with the allotment of shares.

Directors may not allot shares unless they have the power to do so.

Section 69(1) states that no shares may be allotted by a company unless the allotment is authorised, either specifically or pursuant to a general authority, by ordinary resolution or by the constitution of the company.

If no general authority has been provided in the past and no such authority is dealt with in the constitution then it is necessary to authorise any allotment by way of an ordinary resolution.

The meeting at which the resolution is proposed must have had at least 21 days notice, unless a shorter period was agreed by all the members entitled to vote.

The Directors power to allot shares expires 5 years from the date of incorporation or 5 years from the last renewal of the power to allot.

If the authority to allot shares has not been renewed in the last 5 years then it should be renewed prior to any proposed allotment.

This can be renewed by the Shareholders passing an Ordinary Resolution prior to the allotment.

This document contains the required wording of the ordinary resolution.

It can be passed either as a written resolution (to be used in conjunction with Shareholders’ Written Ordinary Resolution) or at a general meeting of the shareholders (to be used in conjunction with Resolutions – General Meeting Format).

If passing a resolution at a General Meeting, i.e. an AGM or EGM, it is important that the relevant notice periods are complied with as follows:

• AGMs require 21 clear days’ notice.
• EGMs require 21 clear days’ notice if passing a Special Resolution – alternatively, 7 days’ notice is sufficient for an Ordinary Resolution.

A copy of the resolution must be filed with the CRO within 15 days of being passed using Form B5.

Before allotting any shares you also need to consider whether any pre-emption rights apply.

If they do then you may need a special resolution to disapply such rights 

Note: A company must have sufficient unissued authorised share capital before new shares may be allotted by the Directors.

Since the introduction of the Companies Act 2014, a limited company can choose to remove the cap on the authorised share capital and therefore have an unlimited amount of shares.

It is at the discretion of the company directors and shareholders whether or not they would like the company to have an authorised share capital.

Previously under the old Companies Acts a company was required to have a cap on their authorised share capital.

It is important that before you allot any shares you determine whether there is any cap on your authorised share capital stated within your constitution (or Memorandum and Articles).

If there is a cap it is possible that the Company does not have sufficient unissued share capital and therefore any increase must be approved by the shareholders by passing a special resolution.

Equally, if the company is setting up a new class of share to be allotted, this will also require a special resolution.

To find out more about the process for issuing shares check out our very helpful step by step guide.