Corporate Financing : Equity Financing

Rationale of Equity Financing

To balance needs of company to raise new money with protection of existing shareholders

Allotment and Issue

Allotment is the unconditional right to have the members name inserted in the register of members

Issue - the moment the members name is inserted in the register of members

Pre-emption right

Right of existing SHs to subscribe to new shares in their company whenever the company is issuing new shares

Normally proportionate

Pre-emption right exceptions

NOT including

• preference shares

• bonus shares

• shares issues for non-cash consideration

• employees share schemes

• companies in financial difficulties

5 stage process

1. Do articles allow directors to create the type of shares that investors want?

2. Is there limits in the articles re the amount of shares to be issued ?

3. Does the board have authority to allot shares or do the directors have to be given authority by SHs?

4. Do we need pre-emption to occur or are 75% or more SHs in favour of passing pre-emption

5. Bearing in mind duties under s.172 (promote success) of the CA 2006, the board must resolve to allot shares

Process in terms of execution

BM: Called by a director to convene a GM to [increase issued share capital by OR / by- pass pre-emption rights by SR / create a new class of shares by SR / to give directors authority to allot by OR] Meeting is adjourned to allow GM to take place

GM: So called by the Board or requisitioned under SS 303-305 Vote on the above

BM (reconvey) : Note what has happened in the GM Pass a Board Resolution to allot the shares Instruct someone to send the relevant resolutions to Companies House (Company Sec if there is one or someone else, usually lawyers) Minutes of meeting signed