This is a summary guide to the process of issuing shares. We can help guide you through this process and explain any areas which you are unsure on.
Typically, issuing shares should be done in the context of investments and share options and you should read our separate notes on those topics for the full picture.
It is important to remember than transfers of existing shares (rather than issues of new shares) incur stamp duty if the value of the transfer is over £1000. This means that for any investment of over £1000 in exchange for shares, it should be done with an issue of new shares, which does not incur stamp duty.
Note: this is a parallel process to agreeing legal documents with investors, or share option scheme documents with staff.
- Determine the number of shares to be issued – avoiding this common pitfall:
COMMON PITFALL. If you have 1000 shares in issue and you want to issue 5% to your technical co-founder, then you need to issue them 53 shares (rounded up from 52.63), not 50 shares. 50 is 5% of 1000 – but if you issue 50 shares, then your total number of shares is then 1050, and 50 is not 5% of 1050! So you need to scale up the number of shares issued to make sure they hold the agreed percentage after the new shares are issued. Use this formula to do this (using figures from the above example):
1000 / 0.95 = 1,052.63 = 100% of shares after the new issue.
1,052.63 / 100 = 10.53 = 1% of shares after the new issue.
10.53 x 5 = 52.6 rounded to 53 shares to issue, which = 5% of 1,052.63 shares.
See our general guide to company shares for more detail
- Get permission from the existing shareholders
You should get permission from existing shareholders (including investors) by asking them to waive their right of first refusal to be issued new shares (known as pre-emption rights) before they are issued to third parties who are not yet shareholders. This right generally exists to protect shareholders from being diluted unfairly or without their consent.
You can do this by having them sign a shareholders’ written resolution to waive their right of first refusal to be issued shares before any third parties (i.e. pre-emption rights).
- Issue the Shares using an SH01 form
Once the shares are ready to be issued – for example of share options are being exercised, or if your investment agreement has been signed – you physically create the shares by submitting a completed SH01 form to Companies House.
You can see our SH01 form template and guidance here.
- Issue Share Certificates to new shareholders
Once the shares are issued, you can create share certificates using our simple but effective share certificate template!
- Record the new shareholders in your shareholder register
You should also record the share issue in your shareholder register – you can download our shareholder register template here.
This Step by Step Guide was written by Legal Sidekick. Legal Sidekick is the legal platform for startups. We offer automated contracts and loads of startup legal resources and guides. For queries on company shares, fundraising or generally, contact us directly.