Companies Act 2006 – Section 550
Section 550: Power of directors to allot shares etc: private company with only one class
848. In line with the recommendations of the CLR (Final Report, paragraph 4.5), this is a
new provision which empowers the directors to allot shares (or to grant rights to subscribe for
or convert any security into shares) where the company is a private company which will have
only one class of shares after the proposed allotment and removes the current requirement,
contained in section 80 of the 1985 Act, for the directors to have prior authority from the
company’s members for such an allotment of shares. In addition, it provides that the members
may, if they wish, restrict or prohibit this power through the articles. The definition of “class
of shares” is contained in section 629.
Section 551: Power of directors to allot shares etc: authorisation by company
849. This section replaces section 80(1) and (3) to (8) of the 1985 Act and applies both to
private companies which will have more than one class of shares after a proposed allotment
and to public companies. It provides that the directors may only allot shares (or grant rights to
subscribe for shares or to convert any security into shares) if they have been given prior
authorisation for the proposed allotment by ordinary resolution of the company’s members or
by the articles.
850. Subsections (2) to (5) set out details of the way in which prior authorisation (or a
renewal of such authorisation) may be given and, in particular, provides that the authority
may not be given for a period of more than five years. An authority given to the directors
under this section, and any resolution of the company renewing such an authority, must state
“the maximum amount of shares” to be allotted pursuant to the authority. This mirrors the
formulation of words used in section 80 of the 1985 Act and enables the members to limit the
authority to a specific number of shares or shares up to a given maximum nominal value.
851. Subsection (8) makes it clear that an ordinary resolution of the company’s members
will suffice for the purposes of giving authority to the directors, even where the effect of the
resolution is to alter the company’s articles of association (which would normally require a
special resolution of the company’s members).
Section 554: Registration of allotment
852. This is a new provision which requires the directors to register an allotment of shares
as soon as practicable (but in any event within two months of the date of allotment). Whereas
the 1985 Act imposes a duty on the company to issue certificates within two months after the
allotment of its shares it does not stipulate a timescale relating to the step which is anterior to
this, namely the registration of the allotment.
853. Subsection (2) makes it clear that the requirement to register an allotment of shares
does not apply if the company has issued a share warrant in respect of the shares in question
(see section 779).
854. Where a company fails to comply with this section, the company and every officer of
the company who is in default commits an offence. The penalty for this offence is set out in
Section 555: Return of allotment by limited company
855. This section replaces section 88 of the 1985 Act. As now, within one month of an
allotment of new shares in a limited company, the company is required to make a return of
allotments to the registrar. This return must contain “prescribed information” relating to the
allotment (that is, prescribed by the Secretary of State by order or by regulations made under
856. A return of allotments made under this section must be accompanied by a statement of
capital. A statement of capital is in essence a “snapshot” of a company’s total subscribed
capital at a particular point in time (in this context, the date to which the return of allotments
is made up).
857. The requirement for a statement of capital when an allotment of new shares is made is
new. It is based on a recommendation by the CLR (Final Report, paragraph 7.30) and for
public companies, this implements a requirement in the Second Company Law Directive
(77/91/EEC) which states:
“the statutes or instruments of incorporation of the company shall always give at least the following
information…(c) when the company has no authorized capital, the amount of the subscribed capital….”.
“Statutes” and “instruments of incorporation” equate to the articles and memorandum and the
need to disclose information pertaining to the aggregate of a company’s subscribed capital
flows from the abolition of the requirement for a company to have an authorised share capital
(see note on section 542).
858. Whilst this Directive only applies to public companies, the requirement to provide a
statement of capital, here and elsewhere in the Act, has been extended to private companies
limited by shares (and in certain cases to unlimited companies having a share capital, for
example, where such companies make their annual return to the registrar). This will mean
that the public register will contain up-to-date information on a company’s share capital (the
requirement for a statement of capital supplements existing provisions which require a
company to give notice to the registrar when it amends its share capital in any way).
859. The information which will in future be set out in the statement of capital includes
prescribed particulars of the rights attached to each class of shares. Again this information
will be prescribed in regulations or by order made under the Act. Such information is
currently required to be filed under either section 123 of the 1985 Act (which relates to
increases in authorised share capital) or section 128(1) and (2) of that Act (which relates to
allotments of a new class of shares).
860. Currently, if shares are allotted as fully or partly paid up otherwise than in cash, the
company must deliver the contract that it has with the allottee (or details of this contract if it
is not in writing) to the registrar. Such a contract may contain commercially sensitive
information which the company would not normally want to disclose. This section does not
reproduce this requirement. It should be noted, however, that, in prescribing the information
which must be included in the return of allotments, the Secretary of State may require details
of any consideration received in respect of shares which are allotted as fully or partly paid up
otherwise than in cash.
Section 556: Return of allotment by unlimited company allotting new class of shares
861. This section requires unlimited companies to make a return of allotments to the
registrar where the directors allot a new class of shares. This carries forward the provisions of
section 128(1) and (2) of the 1985 Act as they apply to unlimited companies. The return must
contain “prescribed particulars of the rights attached to the shares”, that is such information
as may be prescribed by the Secretary of State in regulations or by order made under the Act.