Reasons why a Limited Company might Issue New Shares
It is not unusual for companies to issue new shares at some stage in their existence. Examples of situations where this might happen are:
- Issuing shares as part of an employee or director bonus scheme.
- Additional equity is issued in lieu of or in addition to cash as part of one company taking over another business entity.
- Distributing equity to new investors so that they might benefit in the company's future successes.
The Companies Act together with the memorandum and articles of association will determine the procedures to be followed when issuing new shares. For example, they will state whether pre-emption rights exist and what percentage of existing shareholders must agree to the new issue.
An appropriate value for the shares will need to be determined. The calculation to be used might again be contained within the company's constitution.
Form 88(2) is used to facilitate the issuing of additional new company shares. The completed document is usually sent to Companies House at the time of the submission of the annual return. Stamp duty may be payable by the purchaser on the shares they receive.
The company secretary would be responsible for amending the statutory books. The records would reflect the share issue in the register of members and the director's interests section, if the equity was in fact issued to a company director.
Share certificates usually form part of issuing shares and represent the verification of the new holding which the new member has been given.