Fact pattern

Wildheart Limited (“Wildheart”) has three directors, each of whom owns 1,000 ordinary shares of £1 each in Wildheart. (There are no other shareholders in Wildheart.) Wildheart was incorporated in November 2009 and has the Model Articles for Private Companies as its articles. The board of Wildheart has decided that Tracy Jones (“TJ”) should be introduced as a new investor. TJ will take 1,000 ordinary shares of £1 each and pay a total of £50,000 cash for her investment. She will also be appointed to the board as a director.

(1) Under the Companies Act 1985, all companies were required to have an authorised share capital. This is no longer the case under the 2006 Act.

(2) All shares issued by a company must have a nominal value, but this value may not equate to the value actually paid for them – see para 11.2.3.

The board is empowered through the articles to exercise all the management powers of the company; this will include allotting shares.

In cases where a private company has only one type of share in issue and is proposing to allot further shares of the same type, s. 550 grants directors authority to allot shares without prior reference to the shareholders. (Note that the effect of s. 550 can be diluted or displaced by the company’s articles.)

S. 561 only applies to allotments:

• (i) of “equity securities” (as defined by s. 560);
• (ii) for wholly cash consideration (see exclusion in s. 565).

The effect of s. 561 can be excluded by the methods set out in ss. 567 – 571; however, each section is context-specific. Here the section which is relevant is s. 569.