Issuing shares is a fundamental way for companies to raise capital, particularly when they want to issue shares for investment from new or existing shareholders. However, it involves more than simply accepting funds in exchange for equity. The process is governed under the Companies Act 2006 (CA 2006) and must be handled with care to ensure both compliance and alignment with the company’s strategic aims.
What it means to issue shares for investment
When a company issues shares, it is creating new shares and transferring ownership of those shares to an individual or entity in exchange for value, typically cash. This process results in the recipient becoming a shareholder with the rights attached to the shares, such as voting, dividends, and participation in distributions on a winding-up.
It is important to distinguish between allotment and issue, as they are two related but legally distinct steps in the process:
- Allotment refers to the company’s decision to allocate a specific number of shares to a particular person. This is the point at which the company becomes contractually bound to issue the shares to that person.
- Issue refers to the formal act of entering the person’s name in the register of members and updating the statement of capital. It is only at this point that legal title to the shares is transferred and the person becomes a shareholder in law.
Under section 112 of the CA 2006, a person is not recognised as a shareholder until their name appears in the register of members. This step is essential to confer legal ownership and the rights that come with the shares under both the CA 2006 and the company’s constitution.
Why companies issue shares to raise capital
Equity investment is a widely used method of funding growth. Companies may issue shares to:
- Fund new projects or expansion plans;
- Strengthen their balance sheet;
- Reduce reliance on debt; or
- Bring in strategic investors or partners.
Compared to debt finance, equity does not require repayment or interest, making it attractive for businesses seeking long-term funding. However, it comes with trade-offs, mainly, dilution of existing shareholders and potential shifts in control depending on the rights attached to the new shares.
Compliance under the CA 2006
The CA 2006 sets out the key rules that govern share allotments and issuances. Some of the core provisions include:
- Section 549 – Directors must not allot shares unless authorised to do so by the company’s articles or a resolution of the shareholders.
- Section 550 – In a private company with only one class of shares, the directors can allot shares of the existing class without prior shareholder approval unless the company’s articles prohibit them from doing so.
- Section 551 – This applies to public companies, private companies with more than one class of shares, and certain older or restricted private companies with only one class where section 550 is disapplied or not adopted. Directors require authority from shareholders (by ordinary resolution), which must specify the maximum amount of shares and the duration of the authority (not exceeding five years).
- Section 561 – Existing shareholders have statutory pre-emption rights on the issue of new shares for cash. This means that, before offering the shares to new investors, the company must first offer them to existing shareholders in proportion to their existing holdings. The aim is to protect shareholders from unwanted dilution of their ownership unless they choose not to take up the offer. This right can, however, be disapplied by a special resolution under section 570.
- Section 570 – Pre-emption rights can be disapplied by special resolution, which is common in investment rounds to enable shares to be offered directly to new investors.
Key considerations
Issuing shares is not simply an administrative exercise, it requires careful attention to both the legal and the company’s internal governance perspective. Several important steps must be taken to ensure the process is valid, compliant, and aligned with your wider objectives.
At Moore Barlow, we regularly guide companies through this process, including:
- Advising on whether issuing new shares is the appropriate route, including analysis of the company’s current and proposed share structure, and exploring alternative or complex structuring options to achieve the desired commercial outcome.
- Reviewing the company’s articles of association to identify any restrictions or procedural requirements relating to the allotment or issue of shares, particularly where different share classes are involved.
- Advising on director authority under sections 550 or 551 of the CA 2006, and preparing any necessary shareholder resolutions to authorise the allotment.
- Assessing and, where needed, disapplying pre-emption rights, to ensure shares can be issued lawfully without infringing existing shareholders’ statutory protections.
- Ensuring the correct treatment of consideration, whether cash or non-cash, including documenting it.
- Drafting all ancillary documentation, including board minutes, shareholder resolutions, and related corporate approvals, to ensure the share issue is properly authorised and documented in accordance with the CA 2006.
- Handling Companies House filings, including preparation and submission of the SH01 form, and updating the register of members and statement of capital in line with statutory deadlines.
Our corporate team can manage the process end to end, ensuring your share issue is completed efficiently, legally, and with the right protections in place for your business.
Aligning legal process with commercial objectives
Issuing shares is not just a compliance exercise. It is a strategic transaction that can reshape the company’s ownership, governance, and future direction. Careful alignment between legal process and commercial objectives is essential to ensure that the share issue supports the company’s growth plans and relationships with shareholders. The company should consider:
- Investment terms – Any shareholders’ agreement, subscription agreement or investment deed must reflect the commercial terms negotiated with the incoming investors, including any conditions to completion or performance milestones.
- Class rights and preferences – New investors may request specific rights over their shares, such as weighted voting rights, liquidation preferences, anti-dilution rights, or fixed dividends. These rights must be clearly documented, typically in the company’s articles of association, and we can advise on appropriate drafting and implementation.
- Governance implications – Share issues may lead to changes in board composition, voting thresholds, reserved matters, or veto rights. These governance changes must be workable in practice and aligned with the company’s longer-term strategy and shareholder expectations.
- Post-investment reporting and obligations – Institutional or strategic investors may require enhanced reporting, consent rights, or approval over future decisions. These obligations should be clearly understood and planned for, as they can have an operational impact.
- Exit planning and future funding rounds – Consider how the current share issue fits into a broader roadmap, including future investment rounds or exits. The share structure should be designed with scalability in mind, to avoid unnecessary complexity or investor conflicts later.
Conclusion
Issuing shares for investment can be a powerful enabler of growth, but it must be carried out lawfully and thoughtfully. Directors must comply with their statutory duties, ensure the company follows the procedural rules in the CA 2006, and remain mindful of the broader implications for control and governance.
How Moore Barlow can help
At Moore Barlow, our corporate team regularly advises companies on equity investment—from early-stage fundraising to complex institutional rounds. We can assist not only with the legal process, but also with identifying and addressing the right commercial considerations to ensure that your share issue supports your strategic objectives and advise on how best to structure the transaction to achieve them.
Please get in touch with our Corporate Law team if you would like to discuss your options, we would be happy to assist.
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