Increase in authorised share capital
The authorised share capital (often referred to as the nominal share capital) is the maximum amount of share capital a company can issue to its shareholders, according to the company’s Constitution.
Prior to allotting shares in a company it is necessary to check that the company has sufficient authorised share capital, and indeed in the requisite class of shares. For example, if a Company has an authorised share capital of 1,000 Ordinary Shares, it cannot issue more than this. If the Company therefore wishes to allot further shares to either the existing shareholders or to new shareholder, then it must firstly increase its authorised share capital to facilitate this.
Sub-division and consolidation of shares
Unless the constitution of the company provides otherwise, section 83 of Companies Act 2014 provides the company with the power to consolidate and divide any or all of its share capital into shares of larger amount than its existing shares and to subdivide any or all of its existing shares into shares of a smaller amount.
The method for issuing new shares in a company to either existing of new shareholders, is called an allotment of shares.
Before a company issues new shares there are a number of checks that the company must firstly undertake so ensure that the directors have the authority to issue new shares, that there is sufficient authorised share capital to cover the allotment and that there are no specific prohibitions or regulations in the constitution that need to be taken into consideration. Specific rules will also apply if the shares are being issued for non-cash consideration.
For an allotment of shares to be undertaken correctly it involves more than a B5 form being completed and filed with the CRO.
The method by which shares are transferred out of the name of one shareholder into the name of another, is called a transfer of shares and is effected by the use of a stock transfer form.
Certain share transfers do not attract stamp duty, however for those that do not fall under the various exemptions stamp duty may also be payable on the transfer. In these cases the transfer will need to be submitted through ROS and the stamp duty paid within 44 days of execution.
A Redemption is one of the mechanisms available for a company to acquire any of its own fully paid up shares from an existing shareholder.
Unless the shares that the company wishes to redeem are already designated as “redeemable shares” and the rights attaching to same outline the circumstances and method for redeeming same, the process of a redemption of shares will typically start with the shares to be redeemed being re-designated as redeemable shares and amendments made to the Constitution.
The redeemable shares are then redeemed and cancelled and the authorised but un-issued redeemable shares that remain after the procedure are usually converted back into ordinary share capital.
A Purchase of own Shares is one of the mechanisms available for a company to acquire any of its own fully paid up shares from an existing shareholder.
The purchase of own shares is made pursuant to a contract and must be authorised by the company’s constitution, the rights attaching to the shares in question, or by a special resolution.
Upon completion the form H5 is filed with the CRO and must be accompanied by the company’s resolution approving the purchase contract.
Capitalisation of revenue reserves (“Bonus Issue”)
A capitalisation of revenue reserves (“Bonus Issue”) is a method for aligning the share capital of the company more closely to the company’s net assets by converting reserves into share capital. Bonus shares are ordinarily issued to the existing members of a company in proportion to their entitlement to dividends.
Special care must be taken with such a non-cash allotment if the shares being allotted are to a director or a person connected to a director, as rules relating to contracts in which directors have an interest may apply.
Conversion of loan to share capital
It may be deemed desirable to converts a Directors’ loan into share capital and there are two main mechanisms for achieving this:
1. The loan is repaid by the company and the money used to immediately subscribe for new shares in the company (i.e cheques cross). Under these circumstances the allotment is treated as a cash allotment.
2. There is also a commonly used practice in which the process is recorded by means of bookkeeping entries and under these circumstances a cash movement does not occur. If this method is used then it is treated as a non-cash allotment.
Equity Capital Schemes (Enterprise Ireland/County Enterprise Boards)
Equity Capital schemes are an instrument used by both Enterprise Ireland and the 31 Local Enterprise Offices to allow entrepreneurs to raise funding for their companies.
The company raises capital through the sale of shares to Enterprise Ireland. In their simplest form they involve issuing ordinary shares in return for a specified investment, however in many cases it will mean issuing very specific preference shares to EI. It is generally used where rapid growth is expected and an injection of capital is needed quite quickly.
Employment and Investment Incentive (EII) Scheme (formerly BES)
The Employment and Investment Incentive (EII) scheme is tax incentive scheme designed to encourage investment in businesses.
The EII, which replaced the Business Expansion Scheme (BES) in 2012, provides tax relief for investors in companies involved in certain corporate trades. The scheme qualifies as State aid and is subject to certain restrictions.
The EII scheme allows an individual investor to obtain income tax relief on investments for shares in certain companies up to a maximum of €150,000 per annum in each tax year up to 2020. The companies in return have to issue shares to these investors that meet the requirements set out for qualification under the scheme.
It is usual in a private company that is allotting shares, that the full amount due for the shares to be payable on application or by a stated date. However it is still possible to issue shares where payment by instalments is proposed or part of the consideration is to remain unpaid until called in by the Directors.
Shares which have been issued but not paid for in full may, under certain circumstances, be forfeited and disposed of by the company – most commonly through cancelling the shares.