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How does a company issue new shares?
New shareholders can be introduced to a company in two main ways:
- by issuing new shares
Companies may want to issue new shares for many reasons, such as raising capital. This can be done by bringing in outside investors or by increasing the number of shares to existing shareholders. Capital could be required to fund an expansion of the company or to pay debts. Another reason to issue new shares may be to introduce a bonus “option” scheme for employees or to gift shares to family members.
- by transferring shares
Shareholders have the ability to transfer their shares to existing shareholders or third parties by way of a sale of the shares or a gift, though this must be done in accordance with the company’s Constitution and any Shareholders’ Agreement.
Can a board of directors issue new shares?
There are statutory restrictions on the circumstances under which the board of directors can authorize allotment and issue of shares, e.g., when the shareholders have already approved the issue, or when the issue is proportional to the existing shareholding of the company. In other circumstances (for example, if the company has a new incoming shareholder which changes the shareholding proportion of the existing shareholders), allotment and issue of shares must be approved by shareholders.
What is the difference between the issue and the allotment of shares?
Issue of share is basically a process in which companies issue shares to shareholders (these shareholders might be individuals or corporates) whereas Allotment of shares is the division of shares between those who have applied for those shares. For instance, if a company issues 1,000 shares and 100 people have applied for it, then each applicant is allotted a minimum of 10 shares.
What is a share certificate and its importance?
A Share Certificate, commonly known as a stock certificate is a written document that evidences the buyer’s title for holding the respective company shares.
A Share Certificate acts as legal proof of shareholding in a particular company. When an individual or a business bought some shares in a company, they will be provided with a receipt of that purchase commonly known as a Share Certificate. Having it in place will give you a strong legal footing and also helps to settle down the dispute in the case it arises in the future.