New shareholders can be introduced to a company in two main ways: by issuing new shares or by transferring shares by way of a sale or gift. These are relatively simple procedures; however, it is important to understand the basic requirements of how this can be done. In this article, we will deal with how to issue new shares.
Issuing New Shares
Companies may want to issue new shares for many reasons, such as bringing in outside investors to raise capital or increasing the number of shares to existing shareholders. Capital could be required to fund an expansion of the company or to pay debts. Another reason to issue new shares may be to introduce a bonus “option” scheme for employees or to gift shares to family members.
To issue and allot new shares, a company usually receives a Share Subscription Letter, in which the new investor formally applies to subscribe for the shares. This letter sets out the number of shares requested, the price to be paid (if any), and the payment method (if any).
The board of directors must either convene a board meeting or pass a board resolution to approve the shares application and authorise the issue and allotment of the new shares.
Once the board of directors has approved the issue of the new shares, a Share Certificate should be issued to the new member. The Share Certificate records the number of shares held by the new member.
The new shareholder should then agree to the terms of the existing Shareholders’ Agreement, if one already exists. This should be done with a Deed of Adherence. A Request for Payment of Interest or Dividends enables the new shareholder to receive any interest or dividends due.