Allotment of Shares
/əˈlɒtmənt əv ʃɛərz/
Understand how new shares are created and issued in an Irish company, a vital process for fundraising, employee equity, and managing your cap table properly.
Understand how new shares are created and issued in an Irish company, a vital process for fundraising, employee equity, and managing your cap table properly.
Allotment of shares is the process by which a company creates new shares and assigns them to specific individuals or entities. Under Irish company law, this is the legal mechanism that turns unissued shares into part of the company's issued share capital. It is a critical step for founders when bringing on new investors or issuing equity to employees.
It is important to distinguish between an allotment and a transfer of shares. An allotment involves the creation of brand new shares by the company, which increases the total amount of shares in existence. A transfer, on the other hand, involves the movement of existing shares from one person to another. When you allot shares, the company is the party providing the equity, and the proceeds typically go directly into the company bank account to fund operations.
Under the Companies Act 2014, the power to allot shares generally rests with the board of directors. However, directors must be specifically authorised to do so either by the company constitution or by a resolution passed by the shareholders. This authority is often granted for a fixed period and may be subject to a maximum limit on the number of shares that can be created. Directors must always act in the best interests of the company when exercising this power.
In Ireland, existing shareholders usually have statutory pre-emption rights. This means that if the company intends to allot new shares for cash, it must first offer them to the current shareholders in proportion to their existing holdings. This protects founders and early investors from unwanted dilution. These rights can be disapplied or waived, which is a common requirement during a fundraising round where a new lead investor is joining the cap table.
Once the shares have been allotted, the company must complete several administrative tasks to remain compliant. This includes updating the internal register of members and issuing a share certificate to the new shareholder. Crucially, the company must also file a Form B5 with the Companies Registration Office (CRO) within 30 days of the allotment. This public filing confirms the number of shares issued, the class of shares, and the amount paid for them.
Every allotment of shares has a direct impact on the company's cap table. Because new shares are being added to the pool, the percentage ownership of existing shareholders will decrease unless they participate in the round. Founders must carefully model these changes before the allotment occurs to understand the long term effects on their voting control and future exit proceeds. Accurate record keeping at this stage is vital for future due diligence processes.
