Shareholder Approval to Allot New Shares
A company can increase share capital by issuing (i.e. allotting) new shares to existing or new shareholders. The company’s constitution would typically provide that the Board of Directors (the “Board”) has the authority to issue shares in the company. For example, clause 7(1) of the Model Constitution states:
“Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares but subject to the Act, shares in the company may be issued by the directors.”
However, section 161 of the Companies Act (CA) requires shareholders to give their approval for the issuance of company shares, “notwithstanding anything in the company’s constitution.” As a result, the Board must obtain, from the shareholders, either:
- A specific mandate for that particular issuance of shares; or
- A general mandate authorising the Board to issue shares.
Shareholder approval is conferred by means of a shareholders’ resolution which is passed by the shareholders at a general meeting.
Resolution to Allot Shares to Increase a Company’s Share Capital
Once a general mandate or a specific mandate has been obtained, the Board can pass a resolution authorising the increase in share capital through the issuance of new shares to a shareholder(s).
The Board would also pass a resolution (usually within the same document) authorising the company secretary to issue a share certificate as evidence of the shareholder’s right and title to the shares. The company must issue a share certificate to that shareholder within 60 days of the date of allotment.
The company secretary will also be authorised to record the particulars of the allotment in the register of shareholders of the company and file the return on allotment with the Accounting and Corporate Regulatory Authority (ACRA).
Template for Resolution to Increase a Company’s Share Capital
Need a template for resolutions passed to increase a company’s share capital? You can get one here.