Written Resolution Authorising the Directors to Issue Shares free from Pre-emption Rights

Updated for 2014

In order for a company to issue shares, the directors must have the authority of the shareholders to do so and, where the shares are to be issued to persons other than existing shareholders, they must have the authority to do so free from statutory pre-emption rights.

 

This written resolution of the shareholders of a company authorises the directors of a company to issue shares free from pre-emption rights to persons determined by the board.

 

Further details are set out below.

See below for a full product description
 

In order for a company to issue new shares, there are a number of procedural requirements that the company must first comply with. The relevant steps for allotting new shares are set out below. Note that if the company cannot satisfy all of the steps below, it may need to pass shareholder resolutions in order to become compliant.

1. The company must have sufficient authorised share capital.

2. The directors must have the authority of the shareholders to issue new shares.

3. The directors must have authority to issue new shares free from statutory pre-emption rights.

4. The directors must have authority to issue new shares free from any additional pre-emption rights that may be in the Articles of Association, a Shareholders’ Agreement or elsewhere.

5. The company must convene a meeting of its board of directors to approve the share issue.

6. Following the issue of shares, the company must make appropriate returns and entries into its books.

7. Finally, the company will need to issue new share certificates to the new shareholders to reflect their new shareholdings. A share certificate can be downloaded from www.enodare.ie.

The attached shareholder resolutions deal with steps 3 and 4 of the above process.

Step 3 – Authority of Directors

In order for directors to issue shares in a company, they must have express authority from the shareholders of the company under Section 20 of the Companies (Amendment) Act 1983 to do so. This authority is usually contained in the Articles of Association and normally stipulates that the directors can, for a period of usually 5 years, issue shares up to the maximum amount of the authorised share capital.

However, when the five years runs out or where the authorised share capital has been increased without a corresponding increase in the directors’ authority to allow new shares up to the new limit of the authorised share capital, it can become necessary to get fresh authority from the shareholders to issue more shares. You should check the provisions of the Articles of Association to ensure that the directors are permitted to issue the shares. If not, the shareholders will need to pass an appropriate resolution to allow the company to do so.

An ordinary resolution granting the directors authority to allot shares up to the current authorised share capital of the company is attached.

If all shareholders are not willing to sign the resolution or if the articles of association of the company do not allow for the passing of written resolutions (and the vast majority do), then the Company may still pass the resolution by convening an extraordinary general meeting (“EGM”) of the shareholders. As the resolution required to authorise the directors to allot shares is an ordinary resolution, the resolution at the EGM will need to be approved by in excess of 50% of the votes cast at the meeting (note this is 50%+ of the votes cast at the meeting not 50%+ of the shareholders or 50% of the total number of votes which could have been cast at the meeting had all shareholders voted).

Documents necessary to convene an EGM of a company can be downloaded from www.enodare.ie.

Step 4 – Pre-emption Rights

The directors must have authority to issue new shares free from statutory pre-emption rights.

Sections 23 and 24 of the Companies (Amendment) Act 1983 also provide that where new shares are issued by the directors pursuant to their authority under Section 20, those shares must first be offered to the existing shareholders of the company in an amount which is proportionate to their percentage holding of issued shares in the company. In order to avoid having to go through these pre-emption rounds, it’s common for the Articles of Association of a company to contain a provision authorising the directors to issue new shares free from statutory pre-emption rights. However, as with Section 20 above, this authorisation can be limited in time or to a specific amount of shares. Where the authorisation does not cover some or all of the proposed shares to be issued, it will be necessary to pass a special resolution of the shareholders granting the directors authority to issue these new shares free from the statutory pre-emption rights.

A special resolution dis-applying pre-emption rights is contained in the written resolution.

If all shareholders are not willing to sign the resolution then the Company may still pass the resolution by convening an extraordinary general meeting of the shareholders. As the resolution required to authorise the directors to allot shares free from pre-emption rights is a special resolution, the resolution at the EGM will need to be approved by in excess of 75% of the votes cast at the meeting (note this is 75%+ of the votes cast at the meeting not 75%+ of the shareholders or 75% of the total number of votes which could have been cast at the meeting had all shareholders voted).

Documents necessary to convene an EGM of a company can be downloaded from www.enodare.ie.

General

The notes attaching to these written resolutions of the shareholders clearly explain each of the above 7 steps in detail so that you should be able to easily issue new shares without the assistance of a solicitor or accountant.

This written resolution has been drafted by solicitors and is easy to complete. It comes complete with easy to understand guidance notes and instructions on completing the written resolution.



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