Authorised Share Capital: Simplified Process Introduced

If a company had several classes of shares, such as A, B or C shares, then the sub-division in each class also had to be stated.

In practice for many companies, this may not have been an issue as directors were free to allot shares within the limit of the authorised share capital, provided they had authority. The directors’ authority was either given under the company’s Articles, which lasted for five years, or by ordinary resolution of the shareholders.

If the directors of the company wanted to issue shares above the authorised share capital, then this had to be increased by an ordinary resolution of the shareholders.

Position under the Companies Act 2006

The new Act repeals those sections of the 1985 Act, so companies no longer require an authorised share capital.

Another significant change is that the directors of a private company will no longer need shareholder’s authority to issue shares, provided that the company has only one class of share and that there is no restriction in the Articles.

Private companies incorporated after 1st October 2009 can choose to place a restriction in their Articles on the number of shares that can be issued.

Companies Incorporated under the 1985 Act

Companies incorporated under the old Act have three choices:

1. Pass an ordinary resolution to remove the restriction contained in the company’s Memorandum.  If there is also a restriction in the Articles, then options two or three should be used.
2. Pass a special resolution to adopt new Articles that make no reference to an authorised share capital.
3. Pass a special resolution amending its Articles to remove the reference to authorised share capital.

This is good opportunity for companies who wish to abolish their authorised share capital to undertake a review and consider adopting new Articles to bring them in line with the Companies Act 2006. For specialist advice, contact Shane Morris on scm@silvermansherliker.co.uk or call + 44 (0)20 7749 2700.