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Alex J.
Alex J., Litigator
Category: UK Law
Satisfied Customers: 3665
Experience:  LLB, LPC, DELF
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UK Business Law Question - company formation and

Customer Question

UK Business Law Question - company formation and shareholders A new UK company (UK and wales) was formed and only 1 of the 2 verbally agreed shareholders was added to the Memorandum of Association in the formation process - this was an error. The person
who was not added was also a director. Both shareholders should have been added to the company register and both shareholders paid an accountant for the shares - £5 per person (5 shares * £1) and the fund were deposited. To fix the error the director who did
not get the 5 shares then issued himself 5 of shares and signed a share certificate (same date as company formation). The direcor could issue shares but I am worried about the I am worried about pre-emptive rights for existing members - the existing shareholder
should be offered new shares that are proportional to their existing holdings. Please note that there was enough alloted shared - 10 in total - 5 per shareholder. In the company formation process an error was made of the shareholder. Was this error corrected
correctly? A annual return was not updated until many months later and I want to check the legality of the second shareholder. Kind regards ***** ***** alloted shares was okay but the standard articles state that the director must get an ordinary resolution
Submitted: 2 years ago.
Category: UK Law
Customer: replied 2 years ago.
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Expert:  Alex J. replied 2 years ago.
Thank you for your question and welcome.
My name is ***** ***** I will assist you.
Can I confirm I have understood this correctly?
- you formed a company with ten shares;
- the company was supposed to have fifteen shares and three share holders five shares each;
- the accountant issued the extra five shares without authority and without disapplying pre emption rights?
You want to confirm whether this share issue was valid?
Do all the shareholders currently consent to how the company is constituted ie with 15 shares?
Kind regards
Customer: replied 2 years ago.
Hi AJI do want to confirm if the share issue was validThere was always 10 alloted shares, 5 for each of the 2 shareholders. The technicality is that one shareholder was added in the company formation phase under the Memorandum of Association when both shareholders should have been added - an error. The second shareholder (director) was given a share certificate that was signed by the director (himself) but this happened 2 weeks after the company was created and the director shareholder was given 5 shares. There was never a 3rd shareholder or an extra 5 shares alloted. The second shareholders information was updated later when the annual return was due.There was a gentlemans agreement and no document was signed by either shareholder. Both parties did pay the accountant £5 each as share capital prior to the formation of the company and this money was paid into the bank when it was open. There is an email chain but nothing solidCould it be argued that the director was issuing shares - 5 shares missed from company formation - without applying pre exemption rights to the existing shareholder?Kind regardsDavid
Expert:  Alex J. replied 2 years ago.
Thank you.
The memorandum is only relevant for formation - it only details the subscribers on formations. It really does not make any difference, if you subsequently issue more shares at a later date to a new shareholder, whether that shareholder is on the memorandum or not.
If the director did not have authority to allot the shares, because they did not have authority either under the Articles of Association, S.551 of the Companies Act 2006 or because they forgot to dis apply pre emption rights then the share issue will not be valid.
To make the share issue valid you have to file a statement of capital at Companies House SH01 - and you would need a special resolution (75% of the voting share capital) - ratifying the share issue.
I look forward to hearing from you.
Kind regards