Authorised share capital and the Companies Act 2006
A significant change made by the Companies Act 2006 (abbreviated to the CA 2006) to older law is that there is no longer any limit on a company’s share capital - the amount of money permanently invested by its shareholders in exchange for the ownership of shares.
Share capital of a private limited company: under the Companies Act 2006
A company limited by shares is required to have at least one share.
Unless a business structure requires different classes of shares, most small private limited companies elect to have ordinary £1 shares. You can issue any number. 100 or 1,000 are the numbers most used for a new company.
Under CA 2006, there is no restriction on the number of shares your company can issue. But if you want a limit, you can say so in the company’s articles. In other words, whereas previously a company must have placed an upper limit on the number authorised, it is now not obligatory to do so.
Since the implementation of the Act, a new company no longer has to specify its total share capital in its articles of association. Instead, it must submit a statement of capital to Companies House. Contrary to its name, this is not a separate form or statement but embedded in part 3 of the Form IN01. It states the particulars of:
- total number of shares
- aggregate nominal value
- number of shares fully, partly or unpaid
- specific rights (if any) attached to shares
You should be aware that this statement is not only required to be submitted at the time of incorporation but also at the time of issuance of new shares or buy back of shares. The information must also be provided to Companies House each year as part of the company’s annual return.
What companies that have articles based on Table A must do?
The changes impact companies that were incorporated under the Companies Act 1985 and that have a memorandum and articles based on the old Table A. For the rest of this article, we will call these types of company “older companies”.
Abolition of the requirement to have an authorised share capital is one of a small number of important changes introduced by CA 2006 that can compel an older company to review their company articles and amend accordingly. The reason is that an older company otherwise remains subject to the “authorised capital” figure in its memorandum and articles.
A company with 100 shares of £1 has an issued share capital of £100. All shares were allotted to shareholders at the time of incorporation, so its authorised share capital is also £100. This company now wants to issue new shares.
If it is an older company then it has already touched the upper limit and now has no option but to amend its articles to allow for an increase. The reason is that under the CA 2006 there is no statutory procedure for that increase of authorised capital.
If it is a new company, incorporated under the CA 2006 then it may allot shares to new members without restriction subject to the terms of the company articles. Authorised capital no longer exits as a concept.
Amending your articles of association to reflect the changes
The CA 2006 allows a much more flexible operational structure than before. The change of rules regarding authorised share capital is simply one of many, and if you are required to amend your company’s articles in order to issue new shares, we recommend that you take the opportunity to review other aspects of the document at the same time.
You can, of course, amend your current document carefully. But you will find your task far easier if you start afresh with a suitable set of new-style articles. You can find alternative sets here.
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