Issuing shares in a proprietary limited (Pty Ltd) company is a crucial process for raising capital and expanding ownership. Whether you're seeking to bring in new investors or allocate shares to existing shareholders, following the correct procedure is essential. Here’s a detailed guide on how to issue shares in a Pty Ltd company.
Before issuing shares, it’s crucial to ensure compliance with the Corporations Act 2001 (Australia) and your company’s constitution. Here are the key legal points to consider:
Shareholder Limit: A proprietary company cannot have more than 50 non-employee shareholders.
Compliance: Shares must be issued in accordance with the company’s constitution and shareholder agreements.
2. Determining the Details of the Share Issue
To start the process, you need to determine the specifics of the share issue:
Number of Shares: Decide how many shares you want to issue.
Class of Shares: Determine the type of shares to be issued (e.g. ordinary, preference).
Price of Shares: Set the price at which the shares will be issued.
3. Board Approval and Pre-emptive Rights
Depending on your Shareholders agreement, it is common that the board of directors must approve the share issue. Here’s how to proceed:
Board Approval: The decision to issue new shares must be approved by the company’s directors or board. This involves discussing and agreeing on the number, type, and price of the new shares. The board must pass a resolution to approve the share issue. Ensure the resolution is recorded in the meeting minutes.
Pre-emptive Rights: According to the company's constitution and shareholder agreements, existing shareholders usually have pre-emptive rights. This means they have the first option to buy new shares before they are offered to outsiders. If offering shares to new investors, ensure compliance with any applicable legal requirements and disclose all relevant information about the company.
4. Formalising the Issue
Depending on the complexity of the investment, you will need to prepare the appropriate documentation:
Subscription Agreement: For more complex investments, a detailed subscription agreement outlines the terms and conditions of the share issuance.
Offer Letter: For simpler investments, an offer letter can be used to inform potential investors about the share offer.
Share Application Form: This form is completed by the new shareholder to apply for the shares.
5. Subscription and Payment
Once the documentation is prepared, the next steps are:
Subscription: The new shareholder subscribes to the shares by completing the share application form or signing the subscription agreement.
Payment: The new shareholder pays the agreed amount for the shares.
6. Shareholder Agreements and ASIC Notification
After subscription and payment, formalising the new shareholder’s status involves several key steps:
Deed of Accession: The new shareholder signs a deed of accession, agreeing to the terms outlined in the company’s constitution and any existing shareholder agreements.
Update Member Register: Within 28 days of the new shareholder joining, update the company’s member register to reflect the new ownership.
Issue Share Certificate: Provide the new shareholder with a share certificate as proof of ownership.
Notify ASIC: Use the prescribed form to notify the Australian Securities and Investments Commission (ASIC) about the new share issuance by lodging a Form 484 (Change to Company Details) within 28 days.
. You’ll need to provide:
The number of shares issued.
The date of issue.
Details of the new shareholders.
7. Updating Company Records
Ensure all company records reflect the new share issue, including:
The company’s share register.
The company’s constitution, if necessary.
8. Complying with Taxation and Reporting Requirements
Don’t forget to address taxation and reporting requirements:
Stamp Duty: Check if stamp duty applies to the share issue.
Taxation: Ensure compliance with any relevant tax reporting requirements associated with the share issue.
Practical Example
Here’s a practical step-by-step scenario to illustrate the process:
Board Approval: At a board meeting on June 1, 2024, the directors of XYZ Pty Ltd resolve to issue 1,000 ordinary shares at $10 each.
Offer Shares: Existing shareholders are offered the shares first, in proportion to their current holdings. Any remaining shares are then offered to new investors.
Application and Payment: Shareholders and new investors submit applications and payment by June 15, 2024.
Allotment: On June 20, 2024, the company allots the shares and updates the share register.
Notify ASIC: By June 28, 2024, XYZ Pty Ltd lodges Form 484 with ASIC, detailing the new share issue.
Update Records: The company updates its internal records and issues new share certificates.
Additional Points to Consider
When issuing shares, there are several additional factors to keep in mind:
Share Classes: Consider issuing different classes of shares with varying rights, such as voting rights or dividend priority.
Existing Shareholders vs. Third Parties: If existing shareholders don’t take up all the new shares, you can offer the remaining shares to external investors.
Consulting a Professional
For a comprehensive understanding of the specific requirements and legal nuances, it’s advisable to consult a lawyer or accountant who specialises in Australian corporate law. They can provide tailored advice and ensure compliance with all legal requirements.
Conclusion
Issuing shares in a Pty Ltd company involves several crucial steps, from obtaining board approval to notifying ASIC. By following this guide, you can navigate the process efficiently and ensure that all legal and procedural requirements are met. Whether you’re raising capital for growth or bringing in new investors, understanding the share issuance process is key to the successful management of your company.
