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PRE-EMPTIVE RIGHTS: WHAT ARE THEY AND WHEN DO THEY APPLY?

Share Issues

A share issue is used to introduce new capital into a company. As a business expands, its requirements for funds can be expected to increase beyond those originally contributed by the shareholders. When a company wishes to raise more capital for its business the law on offering securities must be considered.

Under the Companies Act 1993 all new shares that will rank equally with or prior to shares already issued by the company must be offered pro-rata to existing shareholders, subject to any provision in your company's constitution. This is called pre-emptive rights.

If you are considering having a company constitution, you should consider as to whether or not to cancel out pre-emptive rights in the constitution. This is more applicable especially where your company has many shareholders. 

Transfer of Shares

A transfer of shares is the act of changing a share from one owner to another. Subject to your company's constitution, shares in a company may be transferred by entry of the name of the purchaser on the share register. For a transfer to be completed, a form of transfer signed by the present holder of the shares must be delivered to the company or the agent of the company who maintains the share register of the company.

Under the Companies Act 1993 there are no pre-emptive rights on the transfer of shares in a company, unless it is prescribed in the company's constitution. This means you have the right to sell your shares to any party whether or not they are an existing shareholder of the company. However, if your company you hold shares in has a constitution, you should first check the company's constitution to know what restrictions there are on selling your shares (if any).

If you are issuing more shares in your company or are buying or selling shares in a company, please contact us for advice. 

Written by James Moran at 09:00

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