How to allot new shares in a limited company

To allot new shares, the directors need authority to do so, must offer the shares to existing ordinary shareholders first unless pre emption rights have been excluded or disapplied, and must then file a return of allotment (form SH01) with a statement of capital at Companies House within one month. The company must also enter the new shareholder in its register of members within two months.

What is the difference between allotting and transferring shares?

An allotment creates new shares, so the company’s issued share capital goes up and existing holders are diluted unless they take up their share. A transfer moves existing shares from one person to another and leaves the company’s share capital unchanged. Under section 558 of the Companies Act 2006, shares are taken to be allotted when a person acquires the unconditional right to be included in the company’s register of members in respect of them. That date drives the filing deadlines below.

The tax treatment differs too. GOV.UK guidance on tax when you buy shares says you do not have to pay Stamp Duty or Stamp Duty Reserve Tax if you subscribe to a new issue of shares, whereas buying existing shares with a stock transfer form attracts Stamp Duty if the transaction is over £1,000.

Do the directors have authority to allot?

Section 549 prohibits directors from allotting shares, or granting rights to subscribe for or convert into shares, except in accordance with section 550 or section 551. There are two routes:

• Section 550: where a private company has only one class of shares, the directors may allot shares of that class unless the articles prohibit it. This covers many small owner managed companies.
• Section 551: in any other case, the directors need authority from the articles or a resolution of the company. The authority must state the maximum amount of shares that may be allotted and an expiry date not more than five years away. It can be renewed for further periods of up to five years, and varied or revoked by resolution. Where the Act requires a resolution without saying what kind, section 281(3) means an ordinary resolution unless the articles require a higher majority.

Allotments under an employees’ share scheme are outside section 549. A director who knowingly allots without authority commits an offence under section 549(4), but section 549(6) confirms that the allotment itself is not invalidated. Directors must also use the power for a proper purpose under their general duties.

How do pre emption rights work?

Section 561 says a company must not allot equity securities to anyone unless it has first offered them to each existing holder of ordinary shares, on the same or more favourable terms, in proportion to their existing holding of ordinary share capital. “Equity securities” in section 560 means ordinary shares and rights to subscribe for or convert into them; “ordinary shares” excludes shares whose rights to dividends and capital are capped at a specified amount, such as many fixed preference shares.

Under section 562 the offer can be made in hard copy or electronic form and must stay open for at least 14 days. The company can allot to outsiders once that period expires or every offer has been accepted or refused.

A private company has several ways out:

• its articles can exclude sections 561 and 562 generally or for particular allotments (section 567);
• where it has only one class of shares, the articles or a special resolution can give the directors power to allot as if section 561 did not apply, or applied with modifications (section 569);
• where the directors hold a general section 551 authority, the articles or a special resolution can disapply pre emption for allotments under that authority, ending when the authority expires (section 570).

A special resolution needs at least 75% of the votes (section 283), and a copy must be sent to Companies House within 15 days of being passed (sections 29 and 30).

What price can the shares be issued at?

Shares must not be allotted at a discount to their nominal value (section 580). If they are issued for more than nominal value, the excess must be credited to a share premium account under section 610. That account can be used to write off the expenses of, and commission on, the issue and to pay up bonus shares, but otherwise it is treated as paid up share capital, so it can only be reduced through a formal reduction of capital.

Section 582 allows shares to be paid up in money or money’s worth, including goodwill and know how. Section 583 treats the release of a liability of the company for a liquidated sum as cash consideration, which is relevant when a director capitalises an amount the company owes them on their director’s loan account. Public companies face extra rules: shares must be paid up at least as to one quarter of nominal value plus the whole of any premium (section 586), and non cash consideration generally needs an independent valuation (section 593).

What has to be filed and recorded?

Requirement	Deadline	Source
Return of allotment with statement of capital (SH01, online or paper)	Within one month of the allotment	Section 555
Enter the allotment in the register of members	As soon as practicable, and within two months	Section 554
Share certificates ready for delivery	Within two months, unless the terms of issue provide otherwise	Section 769
Copy of any special resolution (for example disapplying pre emption)	Within 15 days of passing	Section 30

The statement of capital must show the total number and aggregate nominal value of shares, any amount unpaid, and for each class the prescribed particulars of rights, the number of shares and their aggregate nominal value (section 555(4)). Failing to deliver the return is an offence by every officer in default under section 557, although the court can extend time if the omission was accidental or it is just and equitable to do so. The updated capital will also appear on the next confirmation statement.

What does an allotment look like in practice?

Illustration only. A private company has one class of 100 ordinary shares of £1 each, held 60 by Ana and 40 by Ben. An investor agrees to subscribe £10,000 for 25 new shares.

1. The company has one class, so the directors can allot under section 550 unless the articles prohibit it.
2. Pre emption applies unless excluded. The company either offers the 25 shares to Ana and Ben pro rata for at least 14 days, or passes a special resolution under section 569 disapplying section 561 for this allotment and files it within 15 days.
3. Of the £10,000, £25 is nominal value and £9,975 goes to the share premium account.
4. The directors resolve to allot, the investor is entered in the register of members, and SH01 is filed within one month showing 125 shares with an aggregate nominal value of £125. The investor now holds 20%.

What tax issues come up when shares are allotted?

When shares go to directors or employees, the employment related securities rules in Part 7 of ITEPA 2003 are the main concern. HMRC’s manual at ERSM20210 explains that the rules apply where the right or opportunity to acquire the shares is available by reason of employment, and that Finance Act 2003 introduced a deeming provision so that directors cannot simply say their shares were founders’ shares. ERSM20500 adds that securities acquired from employment free or for less than market value give rise to a charge on the money’s worth, subject to the Part 7 rules, and HMRC guidance says a non tax advantaged arrangement should be registered by 6 July following the tax year in which the first reportable event happened. See employment related securities basics.

Where an outside investor wants income tax relief, the shares usually need to meet the conditions of the Enterprise Investment Scheme or the Seed Enterprise Investment Scheme, and those conditions should be checked before the allotment, not after.

What are the common mistakes?

• Allotting under section 550 when the company has, or is creating, a second class of shares, in which case section 551 authority is needed.
• Overlooking pre emption rights in the articles of an older company, or assuming shareholders’ informal agreement disapplies them.
• Recording the subscription money as a loan instead of share capital and premium.
• Filing SH01 late, or with a statement of capital that does not reconcile to the register of members.
• Issuing shares to a director at a low price without considering the employment related securities rules.

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Related Accountapedia entries

• Pre emption rights on new shares and transfers
• Giving shares to an employee: the company law steps
• Form SH01: filing a return of allotment
• Bonus issues and capitalisation of reserves
• Issuing shares for non cash consideration
• Convertible loan notes

Sources

• legislation.gov.uk: Act 2006 c. 46, section 558
• GOV.UK: Tax buy shares
• legislation.gov.uk: Act 2006 c. 46, section 549
• legislation.gov.uk: Act 2006 c. 46, section 550
• legislation.gov.uk: Act 2006 c. 46, section 551
• legislation.gov.uk: Act 2006 c. 46, section 281
• legislation.gov.uk: Act 2006 c. 46, section 561
• legislation.gov.uk: Act 2006 c. 46, section 560
• legislation.gov.uk: Act 2006 c. 46, section 562
• legislation.gov.uk: Act 2006 c. 46, section 567

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.