Practical Guide Series : Resolutions For Issue Of Shares

In the course of our fieldwork for legal due diligence exercises, we have encountered various situations where companies have not adopted the proper procedures for passing resolutions for the issue of the company's shares. This article sets out the procedures which a company should adopt in relation to the resolutions to be passed to authorise the issue of new shares.

 

 

LEGAL FRAMEWORK

For the purposes of this article, we will assume that the articles of association of the company confers the power to issue new shares of the company onto the directors.

 

Section 132D(1) of the Companies Act 1965 ("Act") provides that "Notwithstanding anything in a company's memorandum or articles, the directors shall not without the prior approval of the company in general meeting, exercise any power of the company to issue shares."

 

Section 132D(1) does not transfer a company's power to issue shares from the directors to the members in general meeting. Rather, it imposes an obligation on the directors to obtain the approval of the company's shareholders in general meeting before the directors exercise their power to issue shares.

 

 

THE RESOLUTIONS

In view of the matters set out in the preceding section, a company will need to pass two resolutions before it can allot and issue new shares. First, the members of the company will have to pass a resolution in general meeting to authorise the directors to issue the shares in question. This resolution can be framed in the following terms:

 

"Resolved That approval be hereby given to the Directors of the Company to allot and issue [number] new ordinary shares to [allotee] at [subscription price]."

 

Secondly, the directors will pass a board resolution to allot and issue the relevant shares to the allotee. This resolution can be drafted as follows:

 

"Resolved That the Company allots and issues [number] new ordinary shares to [allotee] at [subscription price]."

 

The board resolution will also deal with ancillary matters such as authorising the common seal to be affixed on the new share certificate and the secretary to file Form 24 of the Companies Regulations (Return of Allotment) with the Registrar of Companies.

 

If the shares are preference shares (redeemable or non-redeemable), it will also be necessary for the company to pass a special resolution to set out the rights of the holders of the preference shares in the memorandum or articles of association of the company (Sections 61(1) and 66(1) of the Act). This resolution should be passed before the adoption of the members' resolution to authorise the directors to issue new shares.

 

It is only after the relevant resolutions referred to above have been passed that the directors can allot and issue the new shares to the allottee.

 

 

DATO' PHILIP CHAN ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 

 
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