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GAZETTE
N O V
E M B E R
1983
shares" or "relevant employee shares". This rule is of
considerably more significance to a public company as a
private company may exclude the requirement by its
Memorandum or Articles.
Broadly speaking "equity securities" means all shares,
including rights to subscribe for or convert into shares,
except shares giving a right to participate in distributions
limited to a specified amount (usually preference shares),
bonus shares, employees' shares and subscribers' shares.
Such "equity securities" must first be offered to all
holders of "relevant shares" or "relevant employee
shares" (as defined in sub-section (13)) that is all shares
other than shares carrying a fixed right to participate in
distributions (and for this purpose employees' shares are
included). It should be stressed that these provisions do
not apply if the equity securities are to be wholly or partly
paid up otherwise than in cash. "Cash" for the purposes
of the Act, bears a special meaning set out in Section 2(3)
of the Act and referred to in more detail in connection
with Section 29 (see below). The offer need not be made to
persons who only hold conversion or subscription rights
but must be made to holders of all classes of shares,
provided that the shares otherwise qualify, so that a
person may be entitled to receive an offer of shares of a
different class from his existing shareholding. The Act
lays down the detailed procedure for making the offer and
the rules for acceptance.
Section 23 contains provisions excluding or limiting the
application of the Section in certain cases. The drafting of
these provisions is bordering on Delphic but, in summary:
(a) if any company has provisions in its memorandum
or Articles which requires it to make an offer as
described in Section 23(1) to each person who holds
relevant shares or relevant employee* shares of any
class if it proposed to allot equity securities existing
of relevant shares of that class, then the company
may allot such securities in accordance with such
provisions and sub-section (1) shall not apply;
(b) such securities may be allotted either to the original
allottee or to anyone in whose favour he has
renounced his rights;
(c) sub-section (7) and (8) provide that any offer,
whether made pursuant to sub-section (1) or to
provisions in the Company's Memorandum or
Articles, must be made by serving the same in
accordance with Regulations 133, 134 and 135 of
Table A and must state a period of not less than 21
days during which the offer may be accepted; and
the offer shall not be withdrawn before the end of
that period;
(d) sub-section (1) does not apply if the securities arc
allotted under an employee's share scheme (even if
the person entitled under that scheme has
renounced or assigned his rights to the securities).
It is very important to note that a private (but not
pub l ic l imi t e d) c omp a ny may e x c l u d e, in its
Memorandum or Articles, the application of sub-sections
(1), (7) and (8) of Section 23, and a requirement or
authority contained in the Memorandum or Articles of a
private company shall, if inconsistent with any of these
sub-sections, have effect as excluding them.
Sub-section (11) provides that the company (and every
officer thereof who knowingly authorised or permitted a
contravention) shall be jointly and severally liable to
compensate any person to whom an offer should have
been made under the Section, for any loss damage, costs
or expenses incurred (subject to a two year limitation
period commencing from the date of delivery to the
Registrar of a return of allotments (or where equity
securities other than shares are granted, from the date of
the grant).
In addition to the power for a private company to
exclude the pre-emption requirement in its Memorandum
or Articles the directors of either a private or a public
company may under Section 24 be given a power, where
they are generally authorised under Section 20, to allot
equity securities without regard to the pre-emption
requirements, or with such modification as they may
determine. The power may be conferred by the Articles or
by a special resolution but lasts only as long as the
authority to allot and should therefore be renewed by
special resolution when the authority expires. Such power
may also be given to the directors, in relation to a
particualr allotment, by a special resolution but in this
case the directors must circulate with the notice of the
meeting a written statement setting out their reasons for
making the recommendations and giving certain other
particulars of the proposals.
It should be noted that the Stock Exchange will usually
only permit such authorisation, in the case of a quoted
company, to be given for maximum period of one year
without being renewed and will only, as a rule, permit
such power to be given in respect o f not more than five per
cent, of equity capital. (See Clause 13 of Stock Exchange
Listing Agreement).
The directors may allot equity securities pursuant to an
offer or agreement made before the power to allot lapses
provided that the power enabled the company to make an
offer or agreement in those circumstances. This point
should be borne in mind in drafting the relevant Article or
special resolution.
Payment for Share Capital
The new provisions relating to payment for share
capital contained in Sections 26 to 37 are designed to
ensure that a company receives satisfactory consideration
for the shares that it issues, particularly when the
consideration is otherwise than in cash.
Subject to certain transitional provisions it is now
illegal for any company, whether private or public, to
issue shares at a discount. The other provision which
relates to private companies (after the transitional period)
is that any shares allotted and any premium payable on
them may only be paid up in money or "money's worth"
which includes goodwill and know-how. Most of the
other provisions discussed under this heading, which only
apply to public limited companies, do not apply until the
company passes the requisite resolution for registration
or re-registration as a limited public company.
For a public limited company "money's worth" does
not include an undertaking to do work or perform
services but these provisions do not prevent any company
from allotting bonus shares or from paying up amounts
unpaid on its shares with sums that are "available for the
purpose", the meaning of which will be discussed more
fully in the final article in this series when dealing with
restrictions on distribution.
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