Step by step – a guide to issuing shares in your company

A share is a slice of ownership in a limited company.

Think about your company as a pizza or a cake.

Shares represent the slices of that pizza or cake.

If you own 100% of the shares, you own 100% of the company.

Owners of shares in a company are called its shareholders.

The shares they hold give their owners certain rights and entitlements (for example, a right to vote at shareholder meetings and a right to receive a proportion of the profits (these are called dividends).

You can find out more about shares and the different types of shares in our guide to shares and your share capital.

A company may allow shares to be issued to its founders and any immediate shareholders contributing financial support when it’s first set up; or it may issue shares at any time during its lifetime in order to raise money (called its share capital) from its existing shareholders and/or to introduce new shareholders who want to invest in the business.

The allocation of shares to others is technically called the ‘allotment of shares’ and the decision to give the shares in the first place is called ‘issuing shares’ and is made by the directors.

So, a company can decide to issue shares and to allot them to specified investors, who become shareholders.

But ‘issuing’ and ‘allotting’ are terms that are often used interchangeably to mean much the same thing, and for the sake of simplicity, we follow that trend in this guide.

What’s the difference between allotting and transferring shares?

An allotment of shares is a transaction that takes place between the company and a new or existing shareholder.

The company agrees to issue new shares to the shareholder, and in return, the shareholder pays money to the company.

A transfer of shares is a transaction between an existing shareholder and a buyer who has agreed to purchase those shares.

The company is not a party to the transaction and receives no money for the shares.

The shares are simply sold by the existing shareholder to the buyer who pays the existing shareholder for them.

There may be limitations placed on a shareholder governing to whom they may be able to transfer shares.

For example, they may be obliged to offer their shares to fellow shareholders before they can sell to others.

This is what’s referred to as pre-emption rights (see Step 3 below).

And the company may have imposed approval rights over any proposed third-party buyers, even after that.

To find out more about transferring shares check our our useful step by step guide to transferring shares

What do I need to do to allot new shares in the company?

There’s a fair amount of work and paperwork involved in allotting shares.

It’s not simply a case of filling in a form and sending it to the Companies Registration Office (CRO), for them to note on a public record.

We break it down into 7 key steps for allotting new shares, and we examine them each below.

There’s also a summary of the documents you’ll need to make sure your allotments are valid and enforceable. (You can find all of these documents on PLUGGED.)

These steps will be applicable to any private company limited by shares that intends to allot new shares.

But the guide isn’t suitable for public companies to whom additional requirements apply.

Step 1: Is there a cap on the number of shares you can issue?

To find this out, you’ll need to check your company Constitution (or Articles).

This is the official document created right from the outset of setting up and registering your limited company in Ireland.

Check out our step-by-step guide to setting up a limited company to find out more.

Your Constitution is that relatively short document that states (and agrees with any existing shareholders) that the company will be formed for one or more specified purposes.

It is your company’s all-important rule book that governs how you can manage the business and reach decisions.

You can find our constitution template here

It can be changed – so if, when you set up your business, either of them contained a cap or limit on the number of shares that you can issue, and that cap will be exceeded by your proposed allotment of shares, you’ll need either to remove the cap altogether or increase the limit.

(We’ll cover where you should look to find this out and how you remove a cap/increase it in a moment).

If you’re constrained by your constitution (or Articles), the amount of shares that you’re permitted to issue is called your authorised share capital.

Authorised share capital – newer companies may not have a cap

A company incorporated under the old Companies Act 1963 -2013 will originally have had an ‘authorised share capital’, which acted as a ceiling on the number of shares it could issue.

This would typically have been contained in the company’s memorandum of association and probably looked something like this:

“The authorised share capital of the Company is €1,000 divided into 1000 ordinary shares of €1 each.”

The authorised share capital was the maximum amount of shares that the company could issue.

In the example above, the authorised share capital is 1,000 ordinary shares of €1 each.

If the company allots any more than this, it will exceed the cap.

If the correct procedures for allotting shares are carried out but the cap is exceeded, the allotment will still be valid – but this isn’t good practice.

To avoid this, the cap would need to be removed or increased (see below).

Under the Companies Act 2014, the requirement to have an authorised share capital was removed, so companies incorporated after the introduction of the 2014 Act may choose not to have one.

For those companies that have a cap, it can be dealt with by applying one of the following methods:

1. You could remove the cap in your constitution altogether by passing a special resolution of the shareholders.

Our template written special resolution to issue shares contains a sample resolution at resolution 2.

(Don’t forget to record the passing of the resolution in this separate record agreeing that the special resolution has been passed.)

2. You could retain the cap in your constitution but amend it by special resolution to amend the number of shares that can be allotted.

Since companies are no longer required to have this restriction, it’s more usual to remove the cap altogether.

3. You could adopt a new constitution that makes no reference to a limit on the number of shares that may be allotted.

Our template written special resolution to issue shares contains a sample special resolution at resolution 1 to adopt new clauses in your constitution if you need to do so.

There would normally be a cap introduced within a constitution (or articles of association) because earlier shareholders required it.

It’s also another hurdle to stop dilution.

Step 2 – Do the directors need the authority to allot shares?

It’s the directors who’ll actually allot the shares in the company.

They’ll do that by resolving to do so in a board meeting (see step 6 below).

However, before they can do so, they must have authority to allot shares under the Companies Act 2014.

The directors will have an automatic authority to allot shares if:

• your company is a private company; and
• it only has one class of share (i.e. all the rights attaching to the shares are uniform) and it will continue to have only one class of share after the allotment; and
• there’s nothing in your company’s constitution that prevents the allotment from applying

If that’s the case, you do not need to do anything – the directors already have the authority they need.

If that’s not the case, then you’ll need an authority – for example, if you have more than one class of share.

To find out more about shares and share classes check out our useful guide on shares

Authority can be granted in two ways:

1. by inserting a provision in the company’s constitution; or
2. by obtaining an ordinary resolution of the shareholders to grant this authority. (The authority to allot is an ordinary resolution provided there’s no cap in the Constitution. If there is a cap, you’ll need a special resolution to change the Constitution).

Our template written special resolution to issue shares contains sample wording at resolution 3.

Alternatively, if no special resolution is required and you can simply allot the shares by way of an ordinary resolution you can use our ordinary resolution clause to do that.

Step 3 – Do pre-emption rights need to be disapplied?

A pre-emption right is a right of first refusal that existing shareholders may hold in relation to any planned new share issues.

It effectively requires the new shares to be offered to the existing shareholders first (in proportion to their existing shareholdings) before they can be offered to any new shareholder.

Pre-emption rights exist to protect existing shareholders from the dilution of their existing rights of ownership and control over your business as new shareholders come on board.

This right allows them to preserve their percentage shareholding and avoid their existing ownership stake diminishing in size by subscribing for the new shares themselves (provided they have the funds available to do so).

It’s likely that the existing shareholders in your company will benefit from pre-emption rights.

Most shareholder agreements (and sometimes a company’s constitution) will contain these rights.

It’s also possible for them to be imposed on your company by law.

We’ve looked at both of these scenarios below.

Statutory pre-emption rights

Section 69 of the Companies Act 2014 contains statutory pre-emption rights, which require the existing shareholders to be offered the opportunity to subscribe for shares first, as a matter of law.

Unless you intend to comply with these pre-emption rights (by offering the shares to the existing shareholders first), these pre-emption rights must be disapplied before any new share issue.

You can disapply pre-emption rights in two ways:

1. by inserting a provision in the company’s constitution
2. by obtaining a special resolution of the shareholders

If your company’s constitution doesn’t contain a provision that dis-applies the statutory pre-emption rights, then they’ll need to be dis-applied by a special resolution of the shareholders.

Statutory pre-emption rights do not apply:

• where the allotment of shares is for a consideration wholly or partly paid for, otherwise than in cash;
• in respect of allotments of shares to the subscribers of a company before its incorporation;
• where the allotment of shares is in respect of an employees’ share scheme established by the company;
• where the allotment is an allotment of bonus shares;
• where the constitution or a special resolution of a general meeting of the company so provides.

Our template written special resolution to issue shares contains sample wording at resolution 4.

Alternatively, you could get each of the existing shareholders to waive their pre-emption rights by signing a deed of waiver.

Contractual pre-emption rights

Your company may also have inserted contractual pre-emption rights in its constitution and/or shareholders’ agreement that are bespoke to you.

So always check your constitution and shareholders’ agreement to see what pre-emption rights or other bespoke restrictions they might contain.

If there’s a contractual pre-emption right in the constitution and/or shareholders agreement, and you don’t want to comply with that pre-emption right, then the possible solutions are as follows:

1. the constitution or shareholders’ agreement may contain a process for disapplying the pre-emption rights (for example, it may permit disapplication by way of a special resolution of the shareholders). If so, you may be able to follow that process;
2. you could get each of the existing shareholders to waive their pre-emption rights by signing a deed of waiver
3. if the pre-emption rights are contained in the constitution (rather than the shareholders’ agreement), you could amend the constitution (or adopt a new one) to remove the pre-emption right (or modify it so that it doesn’t apply to the proposed allotment)

Alterations to the constitution or the adoption of new clauses requires a special resolution of the shareholders.

Our template written special resolution to issue shares contains sample wording at resolution 1 to adopt a new constitution or new clauses.

Step 4 – Are you creating a new class of rights for the shares?

When you issue new shares, you may want to create a new class of shares.

For example, you may wish to issue preference shares (see our guide to shares and your share capital).

The rights attaching to that new class of share must be set out in your Constitution.

So, you may need to amend your  Constitution to insert provisions that set out the rights attaching to those shares, or you could put in place new clauses which contain those provisions.

Alterations to your existing constitution or the adoption of new ones require a special resolution of the shareholders.

Our template written special resolution to issue shares contains sample wording at resolution 1 to adopt new clauses

Step 5 – The shares must be paid for by the shareholder

The shareholder will need to pay what’s called the ‘subscription price’ for the shares to the company, meaning the price required by the directors for each share.

This can be the nominal value or a greater amount depending on how much money the Company wants to raise.

The important thing is that the subscription price is the same for all shareholders taking part.

The price that’s paid by the shareholder to your company may depend on what’s agreed between you.

As a matter of law, a company’s shares cannot be allotted for less than their ‘nominal value’, meaning if you’re issuing shares with a nominal value of €1, the subscription price has to be at least €1.

So, your shareholders must pay at least this amount.

If you sell for more than their nominal value, the excess must be transferred to a share premium account.

You can issue partly paid shares, but this doesn’t happen normally.

With private companies, payment for shares need not be in cash (e.g. they could be given in return for the performance of services at a value), and there are few other restrictions.

See our guide to shares and share capital for more information about a company’s nominal share capital.

Similarly, the price that’s paid by your shareholder(s) may or may not give rise to tax implications for you and for them.

We always strongly recommend you take tax advice before you allot/issue shares.

Step 6 – The directors must pass a board resolution to allot/issue new shares

Your directors will need to convene a board meeting where you’ll need to decide (‘to resolve’) to allot new shares on behalf of the company.

You can use our sample board minutes to allot these shares.

You’ll have seen by now that there may be a number of items you’ll need to address by shareholder resolution before your directors can actually resolve to allot the shares.

Our template board minutes recognise this, and you’ll see they’re structured so that:

1. The directors first resolve to circulate a written special resolution (or ordinary resolution, depending on the specific circumstances) to the shareholders to deal with those issues.
2. The directors then adjourn the meeting so that the resolution can be circulated to all shareholders and then (hopefully) passed on the basis that the sufficient minimum number of shareholders approve the resolution.

(For share issues, you’ll typically need 75% of the existing shareholders to approve the share issue in the timeframe set by the proposed written resolution document – usually it’s 21 days. If its an ordinary resolution you require over 50% of the existing shareholders to approve)

The type of resolution required (special or ordinary) depends on if there’s a cap on the issued share capital in your Constitution.

If there is, it will be a special resolution that is required.

3. Once the board has received the required number of shareholder approvals, the board meeting can be resumed, and the directors can record that the written special resolution has been passed.
4. The directors then go on to resolve to issue the proposed new shares.

In practice, especially where written resolutions are being used and everyone’s in agreement, it’s possible to complete the above process very rapidly – particularly if the shareholders and directors are the same people.

This is because all documents can be signed at the same time, and you don’t have to call a meeting of shareholders on 21 days’ notice.

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.

All general meetings of a company other than an AGM are called Extraordinary General Meetings (EGMs).

The directors of a company may convene an EGM whenever they consider it appropriate to do so.

Step 7 – After meeting matters

Once the board has allotted the shares in a board meeting, there are a number of post-meeting matters that will need to be attended to:

1. Company Registration Office (CRO) Filings

You’ll need to file the following forms with the Company Registration Office (CRO):

• Copies of any shareholder resolutions that have been passed to remove any cap on the number of shares that can be issued, adopt a new constitution, grant authority to allot the shares and/or dis-apply pre-emption rights. You must file these within 15 days of the resolution being passed. A Form G1 is used for this purpose.
• A copy of any new constitution that you’ve adopted (or if you’ve amended your existing constitution, a copy of the amended constitution). Again, you must file these within 15 days of the constitution being adopted (or amended).
• A Form B5. This must be filed within one month of the share allotment.
• Updating the Register of Members, if there’s been a change to the Company’s members as a result of the allotment.

For more information on your obligation to maintain a register, please see our guide to company registers 

2. Update the Company’s register of members

Your company must update its register of members (shareholders) to reflect the fact that new shares have been issued.

This is a crucial step, as the person receiving the shares will not technically be their legal owner until they’ve been registered as a shareholder in your register of members.

For more information on your obligation to maintain this register, please see our guide to company registers

3. Update the Company’s Register of Beneficial Ownership (RBO) (if required)

As a private limited company, you are legally required to keep internal registers of beneficial owners.

You are also required to file any beneficial ownership details with the Central Register of Beneficial Ownership.

A notice of a new entry in or change to the RBO register needs to be recorded via the RBO website – www.rbo.gov.ie, if it results in a new individual holding more than 25% of the shares in the company or if this change results in this new person having significant control within the company.

You must keep your RBO register up to date.

There are no paper forms and no filing fees involved.

4. New share certificates

Your company also needs to issue share certificates to those shareholders to whom it has allotted shares.

There are no hard and fast rules to the overall formatting of your share certificate, provided that it contains all the vital information.

You can use our template share certificate as a basis for creating your own and/or checking that your existing preferred format contains everything that it should.

A final summary of all the documents you’ll need to allot those shares

Here’s a handy checklist of all the documents that we’ve introduced above and that you’ll need to issue your new shares:

1.  Subscription letter – the person subscribing for the shares will usually sign a subscription letter addressed to your company. In this letter, that person confirms that they intend to subscribe for the shares and that they’ve paid the relevant subscription price to the company.

Our template subscription letter will help with this.

2. Board minutes – your directors will need to hold a board meeting during which you:

• resolve to circulate any shareholder resolutions that are required to deal with the matters discussed in steps 1 to 4 above; and
• resolve to allot the shares.

You can use our template board minutes for this.

3. Written shareholder resolution – your company’s shareholders may need to pass shareholder resolutions to deal with some or all of the matters referred to in steps 1 to 4 above.

You can use our template shareholder resolution for that.

4. New constitution (if required): you may decide to adopt new articles within your constitution (for example to create a new class of share), rather than amend your existing ones.

It’s best to take advice on making these amendments.

5. Form B5.– this is the form that must be filed at the Companies Registration Office to notify it that new shares have been issued.

6. Update the Members Register – ensure that you update your company registers with the details of any new members

7. Update of RBO Register (if required) – filing of any change to beneficial ownership data which can only be made on-line through a portal on the RBO website at rbo.gov.ie.

8. New share certificates– these certificates must be issued to the shareholders to whom shares have been allotted.

And what about shareholders’ agreements?

Shareholder agreements aren’t covered in this guide – but, if you’re planning to allot further shares in your company and, as a result, there will be 2 or more shareholders, you should have a shareholder’s agreement (as well as a bespoke constitution that is suitable for your company).

If you have a shareholders’ agreement in place already, and the person you’re allotting shares to isn’t already a party to that, you should ask them to execute a deed of adherence to that shareholders’ agreement (you can find a template for one of these annexed to our multiple shareholders agreement).