How do I issue new shares in a UK limited company?

To issue new shares in a UK limited company, the directors must have authority to allot them, existing shareholders’ rights must be respected and the allotment must be reported to Companies House.

The company must normally file form SH01 within one month of allotting the shares.

1. Decide Why the Shares Are Being Issued

A company may issue new shares to:

• Bring in an investor
• Add a new business partner
• Raise capital
• Reward an employee or director
• Convert an investment into equity
• Change ownership percentages
• Create a new share class

Before proceeding, decide how the issue will affect ownership, voting control and dividend rights.

2. Check the Articles of Association

Review the company’s articles to determine:

• Whether the directors can allot new shares
• Whether shareholder approval is required
• What share classes can be issued
• Whether there is a limit on the number of shares
• Whether existing shareholders have pre-emption rights
• Whether new share classes can be created
• Whether transfers or allotments are restricted

A shareholders’ agreement may contain additional restrictions or approval requirements.

3. Check the Directors’ Authority to Allot Shares

Directors must have legal authority to allot new shares.

A private company incorporated under the Companies Act 2006 may not need separate shareholder authority if it will have only one class of shares after the allotment, unless its articles restrict that power.

In other circumstances, authority may need to be provided by:

• The articles of association; or
• An ordinary shareholder resolution

The authority may specify the maximum number of shares that can be allotted and the period during which it remains valid.

4. Review Existing Shareholders’ Pre-Emption Rights

Pre-emption rights give existing shareholders the opportunity to purchase new equity shares before they are offered to someone else.

These rights commonly apply when shares are issued for cash and help protect existing shareholders from dilution.

The company may need to:

1. Offer the shares to existing eligible shareholders.
2. Offer them in proportion to their current holdings.
3. Allow the required acceptance period.
4. Record whether the offer was accepted or declined.

Pre-emption rights may sometimes be excluded by the articles or disapplied by a special resolution. The precise procedure should be checked before issuing shares to a new investor.

5. Decide the Number, Class and Price

The company must determine:

• The number of shares
• The share class
• The nominal value
• The issue price
• Any share premium
• Whether the shares will be fully or partly paid
• The voting, dividend and capital rights
• The identity of each new shareholder

Shares cannot be issued at a genuine discount below their nominal value.

For example, a share with a nominal value of £1 might be issued for £10. The £1 is share capital and the additional £9 is normally recorded in the share-premium account.

6. Consider the Company’s Valuation

The issue price should reflect the commercial agreement and, where relevant, the company’s current value.

Issuing shares too cheaply may:

• Unfairly dilute existing shareholders
• Create tax consequences
• Breach directors’ duties
• Cause disputes between owners
• Create employment-related securities issues

A professional valuation may be appropriate for investor, employee or family share issues.

7. Approve the Allotment

The directors should hold a board meeting or pass a valid written board resolution approving:

• The new shareholder
• The number and class of shares
• The issue price
• The payment terms
• The allotment date
• The necessary Companies House filings
• Updates to company records
• The issue of share certificates

Any necessary shareholder resolutions should be passed before the allotment.

8. Receive Payment or Other Consideration

A private company may issue shares for:

• Cash
• Property
• Intellectual property
• Services
• Shares in another company
• Other agreed non-cash consideration
• A combination of cash and non-cash consideration

The company should keep clear evidence of what it received and whether the shares are fully or partly paid.

9. Update the Register of Members

Enter the new shareholder in the company’s register of members.

The register should show:

• The shareholder’s name and address
• The number and class of shares
• The amount paid or unpaid
• The date they became a member

A person normally becomes a legal member when their name is entered in the register of members—not merely when form SH01 is filed.

10. Issue Share Certificates

The company should prepare and deliver share certificates showing:

• The company’s name
• The shareholder’s name
• The number of shares
• The share class
• The nominal value
• Any certificate number
• The required authorisation or signatures

A company must generally have share certificates ready for delivery within two months after allotment.

11. File Form SH01 With Companies House

The company must file a return of allotment of shares using form SH01 within one month of the allotment.

The form includes:

• The allotment date
• The number of shares issued
• The share class
• The nominal value
• The amount paid or unpaid
• Details of non-cash consideration
• The company’s updated statement of capital
• The rights attached to each share class

Form SH01 reports the share issue but does not normally identify the new shareholder. Shareholder information is updated through the company’s records and relevant Companies House filings.

12. Update PSC Information Where Necessary

A new share issue may change who qualifies as a person with significant control.

Review whether anyone now:

• Owns more than 25% of the shares
• Controls more than 25% of the voting rights
• Can appoint or remove a majority of directors
• Otherwise exercises significant influence or control

Any required PSC updates must be reported separately to Companies House.

13. Review Tax and Reporting Requirements

A new share issue may create tax or reporting obligations, particularly where shares are:

• Issued to employees or directors
• Issued below market value
• Exchanged for services
• Part of an investment relief scheme
• Issued to connected persons
• Issued with unusual rights

Employee-related share issues may need to be reported to HMRC. Specialist tax advice may be appropriate.

Does Issuing New Shares Dilute Existing Shareholders?

Yes, unless existing shareholders receive enough shares to maintain their percentages.

For example, if a shareholder owns 50 of 100 shares, they hold 50%. If the company issues another 100 shares to someone else, the original shareholder will own 50 of 200 shares, reducing their holding to 25%.

Dilution can affect:

• Voting control
• Dividend entitlement
• Sale proceeds
• PSC status
• The ability to approve or block resolutions

New Share Issue Checklist

Before completing the allotment:

• Review the articles and shareholders’ agreement
• Confirm the directors’ authority
• Check pre-emption rights
• Approve the number, class and issue price
• Pass necessary board and shareholder resolutions
• Receive the agreed payment or consideration
• Update the register of members
• Issue share certificates
• File SH01 within one month
• Update PSC information where required
• Review tax and employee-share reporting

Final Thoughts

Issuing new shares in a UK limited company involves more than filing form SH01. The company must confirm the directors’ authority, respect pre-emption rights, approve the allotment and update its statutory records.

Because a new issue can change ownership, voting control and tax liabilities, professional advice may be appropriate for investor, employee or multi-class share issues.

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