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Shares are allocated to shareholders by a system called 'allotment', whereby people become members of a company. Members take shares when a company is formed ('incorporated') and the shares are regarded as 'allotted' to each member. New members can later be allotted shares, but only with the authority of existing shareholders. This authority comes from either a company's articles of association or a resolution passed at a general company meeting. A public or private company can give authority to allot shares for up to five years by an ordinary resolution. Additionally, a private company can pass an elective resolution for any fixed period. Ordinary and elective resolutions about allotting shares must be delivered to Companies House within 15 days of being passed. Form 88(2) must be completed and sent to the Registrar at Companies House when any allotment of shares is made.

Share capital is the total amount of shares issued by a company. A memorandum of association, which is needed for a limited company to form, states this amount and how it is divided into individual shares of a set amount, such as 10p a share. The amount in the memorandum is called the authorised capital.

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Members of a company must take at least some shares when their company is registered, making them subscribers. A memorandum of association lists the people owning shares and the number they own. There are no upper or lower limits on authorised share capital for private limited companies, but a public limited company (plc) must have an authorised share capital of at least £50,000. A plc must complete Form 117 stating its share capital meets the minimum requirements.

A company can increase its authorised share capital by passing an ordinary resolution at a general meeting. A copy of the resolution and Form 123 detailing the proposed increase must reach Companies House within 15 days of being passed. A company can decrease its authorised share capital by passing an ordinary resolution to cancel some shares. Notice of the cancellation is formally given on Form 122, and must reach Companies House within one month.

Under the Financial Services Act 1986, as amended by the Official Listing of Securities (Change of Competent Authority) Regulations 2000, and in the Listing Rules of the Financial Service Authority (FSA), if securities are to be offered to the public in the UK for the first time before admission, the Listing Rules require that a prospectus is submitted to, and approved by, the FSA and that the prospectus is published.

An offer will be treated as being made to the public if it is made to any section of the public, whether chosen as already being members or debenture holders of the company, or as clients of the person issuing the prospectus, or in any other manner. There are exceptions to the rule, detailed in the Act.

Section 81 of the Companies Act prohibits a private limited company (unless limited by guarantee and without share capital) from making public offers. Generally, therefore, only a public limited company can issue a prospectus. A prospectus must be registered at Companies House on or before the day of its publication. The law requires only one copy to be delivered. Any supplementary prospectus adding to or correct the information in the original document must also be delivered immediately to the Registrar. Companies incorporated outside the United Kingdom which offer securities within the UK must also send a copy of their prospectus to the Registrar.

If you want to become familiar with the description and the contents of English companies registration packages, offered by Coddan and to find above, what kind of service is included in this or that British companies formation package, to get an idea about the price of annual renewal of the service, and about the general legal requirements to the company incorporation within United Kingdom, please, select the package you need from the list, situated below the banner. The information in the banner will be renewed according to the package you've chosen.

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OFFER OF SHARES BY A PRIVATE LIMITED COMPANY

Introduction. A private limited company can only make offers of its shares if an offer can properly be regarded as being a domestic concern of the persons receiving and making the offer. Thus a private limited company should first solicit indications of interest and then deal with investors individually as a 'domestic concern'. Also unless the promotional material is approved by an authorised person it can only be seen by a person who is exempt such as a certified sophisticated investor.

Restrictions in the Companies Act 1985. Section 81 Companies Act 1985 states "A private limited company commits an offence if it: offers to the public (whether for cash or otherwise) any shares in or debentures of the company; or allots or agrees to allot (whether for cash or otherwise) any shares in or debentures of the company with a view to all or any of those shares or debentures being offered for sale to the public …"

The Companies Act 1985 s742A states "this section does not require an offer to be treated as made to the public if it can properly be regarded, in all the circumstances: as not being calculated to result, directly or indirectly, in the shares or debentures becoming available for subscription or purchase by persons other than those receiving the offer; or as being a domestic concern of the persons receiving and making it".

This is complicated by s. 58(3)(b) which states it is evidence of an offer to the public if "an offer of the shares or debentures (or any of them) for sale to the public was made within 6 months after the allotment or agreement to allot".

Meaning of "Offer". The general rule is that an offer is an expression of willingness to contract on specified terms, made with the intention that it is to become binding as soon as it is accepted by the person to whom it is addressed. An offer must be capable of being accepted to form a contract for the sale or issue of securities or is an invitation to make a contractual offer.

Thus business plans designed merely to solicit indications of interest do not constitute offers for the purposes of the law restricting public offers by private companies in the Companies Act 1985 (or for the purposes of the Public Offers of Securities Regulations 1995).

Offers by a private limited company. Under the Companies Act 1985 the offence is committed by the private company offering shares to the public.

Thus one has to consider separately an offer by the company from so-called treasury stock (a primary offer) and an offer by an existing holder of shares in the company (a secondary offer).

When dealing with a primary offer the initial information supplied by the company must avoid the problem by not being classified as an offer. The information may well be classified as a "financial promotion" but that is a separate issue. When indications of interest have been received then a limited number of offers can be made providing the offer can properly be regarded, in all the circumstances, as being a domestic concern of the persons receiving and making it. Thus any offer has to be closely controlled and managed within the exemptions.

When dealing with a secondary offer the offer is being made by the individual holder and not by the company. The Companies Act 1985 restriction on private companies should not therefore normally apply and we need only worry about the POS Regs. (and of course financial promotion regulations). However s. 58(3) (see above) effectively means that there should be no secondary offerings of shares in a private limited company until at least 6 months have elapsed from an allotment by the private limited company. If there is a secondary offering within the 6 months then the allotment by the company is presumed to have been offered to the public, unless the contrary is proved.

POS Regs. The Public Offers of Securities Regulations 1995 ('POS Regs') regulates offers of securities to the public. Regulation 4(1) states "when securities are offered to the public in the United Kingdom for the first time the offeror shall publish a Prospectus…".

Regulation 5 states "a person is to be regarded as offering securities if, as principal (a) he makes an offer which, if accepted, would give rise to a contract for the issue or sale of the securities by him or by another person with whom he has made arrangements for the issue or sale of the security; or he invites a person to make such an offer; But not otherwise;"

There are then numerous exemptions (such as "the securities are offered to no more than 50 persons"). Also under the POS Regs there is an exemption when "the securities are offered to a restricted circle of persons whom the offeror reasonably believes to be sufficiently knowledgeable to understand the risks involved in accepting the offer." Logically this exemption applies to any person authorised in terms of the Financial Services and Markets Act 2000 ("FiSMA") and to anyone certified by an authorised person as a sophisticated investor under the FiSMA (Financial Promotion) Order 2001.

CONCLUSIONS ON OFFERS BY A PRIVATE LIMITED COMPANY

When dealing with a primary offer by a private limited company do not allow any offer until you have narrowed the potential shareholders down so you can deal with them individually as a "domestic concern".

When dealing with a secondary offer only make the offer to sophisticated investors or to other persons who are appropriately exempt under both the POS Regs and under the FiSMA (Financial Promotion) Order 2001. Also private limited companies should discourage any secondary offerings for a period of at least 6 months after they have allotted any shares (to prevent the assumption that such an allotment was an offer to the public).