This article is for Irish company directors and founders who need to understand how share capital works and when they might need to change it.
If you're raising investment, setting up employee share schemes, or considering returning capital to shareholders, this guide covers how to increase authorised capital, issue new shares, and reduce capital through both summary approval and court procedures.
Key Takeaways
• Modern Irish private companies can choose unlimited authorised capital at incorporation, eliminating future administrative hurdles for share issuances.
• Every share allotment must be filed with the CRO on Form B5 within one month or face penalties.
• Directors making false solvency declarations for capital reductions face personal liability if the company becomes insolvent within 12 months.
• The Summary Approval Procedure requires a special resolution (75% approval), director solvency declaration, and independent auditor report for capital reductions.
• Shareholders holding 10% of issued capital can apply to court within 30 days to cancel non-unanimous capital reduction resolutions.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
What's the difference between authorised capital and issued capital?
Authorised capital is the maximum number of shares your company can issue according to its constitution, while issued capital is the actual number of shares you've allocated to shareholders. Think of authorised capital as your venue capacity and issued capital as the tickets you've actually sold. Modern Irish private limited companies can choose unlimited authorised capital to avoid future administrative hurdles.
When would I need to increase my company's authorised capital?
You'll need to increase authorised capital when conducting fundraising rounds with new investors, implementing employee share option schemes, or when you want strategic flexibility for future opportunities. If you've reached your authorised capital limit, you cannot issue additional shares without first increasing that limit. Companies with unlimited authorised capital avoid this issue entirely.
How do I increase my company's authorised capital?
You need shareholders to pass a special resolution with at least 75% approval, then file the signed resolution and updated constitution with the CRO within 30 days. The resolution must specify the exact amount of the increase. This process only applies if you specified an authorised capital limit at incorporation.
What's the difference between increasing authorised capital and increasing issued capital?
Increasing authorised capital simply raises your maximum share limit through a constitutional amendment, while increasing issued capital means actually allotting shares to specific shareholders and receiving consideration. Increasing issued capital creates real ownership stakes and requires board authority, pre-emption rights compliance, and Form B5 filing within one month. The two processes serve different purposes and have different legal requirements.
When would I want to decrease my company's capital?
You might reduce capital to create distributable reserves if accumulated losses prevent dividend payments despite current profitability, to return surplus capital to shareholders after asset sales or restructuring, or to simplify complex share structures before major transactions. Capital reductions can be more tax-efficient than accumulating unnecessary reserves.
Can my private limited company use the Summary Approval Procedure for capital reduction?
Yes, most private limited companies can use this streamlined procedure instead of court approval, significantly reducing time and cost. However, your constitution must not prohibit capital reductions, and you'll need director solvency declarations, an independent auditor report, and a special resolution with 75% shareholder approval. Public limited companies must still obtain court approval.
What happens if my solvency declaration proves false after a capital reduction?
Directors who make materially false solvency declarations face personal liability if the company becomes insolvent within 12 months of the reduction. You must demonstrate you had reasonable grounds for your declaration, and you could face restriction orders limiting your ability to serve as director of other companies for five years. Courts scrutinize capital reductions closely when insolvency follows.
Do minority shareholders have any protection against capital reductions?
Yes, if the capital reduction resolution wasn't unanimous or didn't receive 90% approval, dissenting shareholders holding at least 10% of issued capital can apply to court within 30 days to cancel the resolution. This provides minority protection against potentially unfair capital reductions.
What are pre-emption rights and how do they affect issuing new shares?
Pre-emption rights are statutory rights that require you to offer new shares issued for cash to existing shareholders proportionately before allotting them to others. However, these rights can be disapplied through constitutional provisions or specific special resolutions. Without proper compliance, share allotments can be invalid and create significant legal complications.
When is court approval required for capital reductions instead of the Summary Approval Procedure?
Court approval is mandatory for public limited companies and for any company whose constitution prohibits capital reduction (unless you amend the constitution first). Some companies also prefer court approval for major reductions to obtain the certainty of judicial blessing, which requires creditor notification through newspaper advertisements and written notice to creditors outside Ireland.
