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46A: Consideration for issue of shares on registration
or “How you might need to pay for shares when a company is first set up”
You could also call this:

“Board decides share price and terms for new or existing shares”

When a company’s board wants to issue new shares, they need to make some important decisions. Before they can do this, they must decide how much the shares will cost and what the terms of issuing them will be. If the shares aren’t being paid for with cash, the board needs to figure out how much the payment is worth in cash.

The board also needs to agree that the price and terms are fair for the company and all the people who already own shares. If the shares aren’t being paid for with cash, the board must agree that the value of what’s being given for the shares is at least as much as the shares are worth.

The directors who agree to these decisions must sign a document that explains all of this information. This document needs to describe what’s being given for the shares and explain why they think it’s fair.

If shares that have already been issued are being paid for with something other than cash, the board needs to do similar things. They must decide how much the payment is worth in cash and agree that it’s fair and worth at least as much as the shares.

The board must send a copy of the signed document to the Registrar within 10 working days. If a director doesn’t sign this document when they should, they might get in trouble with the law.

These rules don’t apply when shares are created by converting other financial products or when someone uses an option to buy shares. If the board doesn’t send the document to the Registrar on time, the directors might get in trouble with the law.

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Next up: 48: Exceptions to section 47

or “When you can issue shares without following the usual rules”
Next

Part 6 Shares and debentures
Issue of shares

47Consideration to be decided by board

  1. Before the board of a company issues shares under section 42 or section 44, the board must—

  2. decide the consideration for which the shares will be issued and the terms on which they will be issued; and
    1. if the shares are to be issued other than for cash, determine the reasonable present cash value of the consideration for the issue; and
      1. resolve that, in its opinion, the consideration for and terms of the issue are fair and reasonable to the company and to all existing shareholders; and
        1. if the shares are to be issued other than for cash, resolve that, in its opinion, the present cash value of the consideration to be provided for the issue of the shares is not less than the amount to be credited for the issue of the shares.

          1. The directors who vote in favour of a resolution required by subsection (1) must sign a certificate—

          2. stating the consideration for, and the terms of, the issue; and
            1. describing the consideration in sufficient detail to identify it; and
              1. where a present cash value has been determined in accordance with subsection (1)(b), stating that value and the basis for assessing it; and
                1. stating that, in their opinion, the consideration for and terms of issue are fair and reasonable to the company and to all existing shareholders; and
                  1. if the shares are to be issued other than for cash stating that, in their opinion, the present cash value of the consideration to be provided for the issue of the shares is not less than the amount to be credited for the issue of the shares.

                    1. Before shares that have already been issued are credited as fully or partly paid up other than for cash, the board must—

                    2. determine the reasonable present cash value of the consideration; and
                      1. resolve that, in its opinion, the present cash value of the consideration is—
                        1. fair and reasonable to the company and to all existing shareholders; and
                          1. not less than the amount to be credited in respect of the shares.

                          2. The directors who vote in favour of a resolution under subsection (3) must sign a certificate—

                          3. describing the consideration in sufficient detail to identify it; and
                            1. stating—
                              1. the present cash value of the consideration and the basis for assessing it; and
                                1. that the present cash value of the consideration is fair and reasonable to the company and to all existing shareholders; and
                                  1. that the present cash value of the consideration is not less than the amount to be credited in respect of the shares.

                                  2. The board must deliver a copy of a certificate that complies with subsection (2) or subsection (4) to the Registrar for registration within 10 working days after it is given.

                                  3. For the purposes of this section, shares that are or are to be credited as paid up, whether wholly or partly, as part of an arrangement that involves the transfer of property or the provision of services and an exchange of cash or cheques or other negotiable instruments, whether simultaneously or not, must be treated as paid up other than in cash to the value of the property or services.

                                  4. A director who fails to comply with subsection (2) or subsection (4) commits an offence and is liable on conviction to the penalty set out in section 373(1).

                                  5. Nothing in this section applies to the issue of shares in a company on—

                                  6. the conversion of any convertible financial products; or
                                    1. the exercise of any option to acquire shares in the company.

                                      1. If the board of a company fails to comply with subsection (5), every director of the company commits an offence and is liable, on conviction, to the penalty set out in section 374(2).

                                      Notes
                                      • Section 47(8)(a): amended, on , by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).