Introducing New Shareholders to a Limited Company

What is a Share?
A share can be described as an intangible accumulation of rights, interests and obligations. The reason companies issue shares is to allow the company raise funds to carry out its activities and make a return for its members. It also allows the ownership to change in a company.

Different share classes may have different rights so it is very important to review the articles of association to understand the rights attached to the shares. Ordinary shares usually (but never assume!!) have the following rights:

• A right to attend and vote at general meetings
• A right to a proportion of the profits of a company – dividend
• A right to the capital surplus on winding up
• A right to notice & information from Company

Allotment of Shares
The allotment of shares is the issuing of new shares to the existing shareholders or to third parties. The Directors of a Company may allot shares in the capital of the Company, if they have the authority to do so. Some examples where allotment of shares may be used are as follows:

• To raise money for the Company
• To introduce new investors such as BES investors
• To allow Enterprise Ireland or Enterprise Board Investors
• To convert loans to share capital
• To introduce a golden share
• To put in place a group structure
• To fund a redemption of shares
• To implement a bonus issue of shares

Directors may not allot shares unless they have the power to do so. The Directors power to allot shares expires 5 years from the date of incorporation or 5 years from the last renewal of the power to allot. If the authority to allot shares has not been renewed in the last 5 years then it should be renewed prior to any proposed allotment. This can be renewed by the Members passing an Ordinary Resolution prior to the allotment.

A company must have sufficient unissued authorised share capital before new shares may be allotted by the Directors. If the Company does not have sufficient unissued share capital or is setting up a new share class this must be approved by the members passing a special resolution.

The Memorandum and Articles of Association and any shareholder agreements should be reviewed for regulations on pre-emption rights, unissued share capital and other provisions that may affect the allotment of shares. The shares may be allotted for cash, non-cash and may be allotted at a premium.

The new shareholders must apply for shares to be allotted to them, the Directors must approve the allotment of shares, write up the Register of Allotments and Register of Members and file the form B5 with the CRO. New share certificates should be issued to the new shareholders.

Transfer of Shares
Shareholders have the ability to transfer their shares to existing shareholders or third parties. This allows shareholders to sell their shares or for companies to be bought and sold. Some examples where we have used transfer of shares are as follows:

• Shareholder wants to transfer shares to existing shareholders
• Shareholder wants to exit company by transferring to existing or third parties
• Succession Planning (transferring shares to spouse or siblings)
• Share for Share Exchange
• Company Takeover
• Company Restructuring or putting a group in place

In a Private Limited Company, Directors have right to refuse any transfer of shares once the reasons are in the best interests of the company and are not oppressing any shareholder rights.

The Memorandum and Articles of Association and any Shareholders Agreements should be reviewed prior to any transfer for any restrictions on the transfer of shares.

A transfer of shares must be approved by the Directors and the appropriate stamp duty paid to the Revenue Commissioners. Stamp duty is calculated at 1% of the total consideration paid or the market value for the shares. If the value of the consideration or the market value of the shares is less than €1,000, the stock transfer form does not have to be stamped.

Stamp duty must be calculated and paid using Revenue’s ROS system. Once the appropriate stamp duty is paid, the Revenue will issue a stamping certificate which must be provided to the Company as proof that the appropriate stamp duty has been paid.

The Company should then write up the Register of Members and Register of Transfers and issue a new share certificate.

If you have any company law queries or require assistance in drafting company secretarial documentation, please feel free to contact Nigel Dennehy on 061 455601 or nigel@bjdennehy.ie