You’ve secured investment from a friend, family member, or early-stage investor - exciting! Now, it’s time to turn that agreement into shares in the company.
The process is easier to manage when you take it one step at a time. Here are the 5 key steps:
1. Record the investment terms
Start with signing a subscription agreement between the company and the investor.
This records the amount being invested, the number and class of shares the investor will receive, the price per share, and the completion date. It gives both sides a clear written record of what has been agreed before the shares are issued.
2. Put the company approvals in place
Next, follow the correct legal formalities to issue the shares.
For most private companies with one class of shares, the directors have legal authority to issue shares by a board of directors resolution. In other cases, the shareholders will need to approve it through a shareholders resolution.
Existing shareholders may also have pre-emption rights, giving them the opportunity to take up new shares first, meaning that a shareholders resolution is needed to approve shares being issued without going through a formal pre-emption process.
The directors can then approve the final allotment through board minutes. Together, these documents create a clear record that the share issue was properly approved.
3. Issue the shares and share certificate
Once the documents are signed, the approvals are in place, and the funds have been received, the company can allot the shares.
The company should then provide the investor with a share certificate confirming the number and class of shares they hold. This should usually be provided within two months of the allotment.
4. Update the company records
After the shares are issued, update the company’s register of members and cap table.
The register of members is the legal record of the company’s shareholders, while the cap table shows how ownership is divided after the investment.
Keeping both up to date gives founders and investors a clear view of who owns what and helps prepare the company for future rounds.
5. File the SH01 at Companies House
The final step is filing form SH01, also called the return of allotment of shares, with Companies House.
The form records the new shares and the company’s updated share capital. It should be filed within one month of the allotment.
What if the investor wants SEIS or EIS relief?
SEIS and EIS are UK tax relief schemes that can make early-stage investment more attractive.
If your investor plans to claim relief, there are additional steps after the shares are issued. The company will need to submit the relevant compliance statement to HMRC and, once authorised, provide the investor with the certificate needed to make their claim.
It is helpful to consider SEIS or EIS before agreeing the investment terms so the share issue can be structured with the eligibility rules in mind.
Do you need a Shareholders’ Agreement?
A shareholders’ agreement is not required for every share issue, but it can be useful when a new investor joins the company.
It can cover matters such as founder vesting, decision-making, and what happens if the company is sold. Drag-along provisions, for example, can allow a sale to proceed where the required majority of shareholders agrees.
