Do you need help with an equity investment? EM Law are experts in equity investments. Our lead corporate lawyers are Barry Doherty and Neil Williamson who have extensive experience in advising clients on a wide range of corporate matters.
A company needs capital in order to fund start-up expenses, to expand and to grow. This capital can be raised through a number of methods. One of these methods is by equity investment. An equity investment is an investment by individuals or firms, which consists of buying stocks or shares in the company. For an investor, an equity investment is a medium to long-term strategy for maximising wealth. The investor will recover their money when they eventually sell their shares to others.
In order to raise equity investment, a company will usually create and issue new shares. Before doing this, you should check your company’s articles of association to see if there are any restrictions or procedural points that you will need to apply to the process. If your company has a shareholders agreement, this should also be checked. Unless you know what you are doing, it is usually a good idea to get an experienced professional to assist you with the process. Rectifying an issue with equity investments is likely to cost your company time and money if it goes wrong.
One of the things you should check for in your articles of association is whether there is a cap on the number of shares that may be issued. If there is a cap then this may have to be removed. This can be done by passing a special resolution to alter the articles of association or by passing an ordinary resolution to increase the authorised share capital.
Directors are responsible for the actual allotment of shares but they made need the authorisation of the shareholders to be able to make an allotment. However, there is an exception to this rule for private companies. Private companies with only one class of share have the power to allot shares of that class, unless they are prohibited from doing so in the company’s articles. This means that many smaller companies can bypass this requirement. If this exception does not apply, an ordinary resolution can be passed.
The next step is to check that the issue of shares complies with any pre-emption rights. A pre-emption right is the right for existing shareholders to have the first refusal on the issue of new shares by a company. Pre-emptive rights allow shareholders to have the chance to prevent the dilution of their shareholding if they have sufficient funds to subscribe for the new shares. If you find that there are any pre-emption rights, these can be disapplied. Pre-emption rights can be disapplied through passing a special resolution. Alternatively, the shareholders can waive their rights through a less formal procedure such as a waiver letter.
Once the required resolutions have been passed, the board of directors can issue the new shares. This is usually done during a board meeting and will be documented in the board meeting minutes. Once new shares have been issued, there are various other registration and filing requirements to comply with. These include issuing share certificates to the new shareholder(s), filing a statement of capital with companies house and updating the company’s register of members.
Issuing new shares will dilute the shareholding of current shareholders. For shareholders, this effectively means that their ownership of the company is being cut down and can also mean loss of control over their business. For investors, investing in equity can be a risky move – company performance may not live up to expectations and if the business fails it will be difficult for the investor to recover anything.
"Neil and his team have undertaken several items of legal work covering contracts, agreements and share option schemes for IMC Worldwide... View More Testimonials"
Gavin English MD IMC Worldwide Ltd
"Neil at EM Law advised us with regards to GDPR. He was thoughtful and thorough.... View More Testimonials"
COO of a Strategic Communications Agency
"I want to thank Neil at Emerging Law for his support and guidance whilst I have been setting up my own business. He has talked me through the step by step stages and legalities involved so that I can make informed decisions about my business approach... View More Testimonials"
Ayshen Ali founder Attainers Limited
"I felt incredibly fortunate to have come across Imogen. She was fantastic at helping at every juncture... View More Testimonials"
SM, Recruitment Manager
"Neil and Lauren were both very helpful in drafting contracts I needed for my firm... View More Testimonials"
Alex Mosley, Director Perrygate Property Limited
"Neil and Helen provided us with an employment contract and terms and conditions of business. We found Neil and Helen to be extremely informative and helpful throughout the process... View More Testimonials"
Grant Lambert MD Honor Search (Digital Recruitment)
"Neil Williamson, I cannot thank enough for his work and legal advice, which had brought the great result.... View More Testimonials"
"Neil was brilliant, patient and thorough guiding me through queries setting up my business to be compliant.... View More Testimonials"
Kate York, Photographer
"Neil and I worked alongside each other for several years securing software business overseas for Crown Agents... View More Testimonials"
Nick Small Director Nick Small Consulting
"What can I say about Imogen? She was the shining star in what was a very difficult time for me.... View More Testimonials"
VR, Nutritional Chef and Culinary Manager
"Imogen....has a very personable approach and is succinct in her communication. I would highly recommend her... View More Testimonials"
KE, Development Manager
"Imogen has always given me sound, objective and carefully considered legal advice.... View More Testimonials"
MB, Senior Sponsorship Manager
"Thank you for all your help with the matters regarding my company, you have been thorough in all aspects to the finer detail... View More Testimonials"
John Taylor Director Glo-bell London Ltd
"Neil is able to address complex issues, give us advice that we can follow and come up with creative solutions... View More Testimonials"
Ismet Yucetas CEO Middle East Air Drilling Services
"Imogen is a fantastic employment lawyer. Clear, supportive and very skilled in her area.... View More Testimonials"
LC, Director at a Management Consultancy
"Neil helped us structure, negotiate and put in place our first client software-as-a-service contracts. His technical and commercial advice was invaluable - he understands exactly where we are coming from... View More Testimonials"
Lena Rosenior CEO De Graft Management Ltd
"Cardno has worked closely with EM Law since 2013. The advice and support provided to our business by EM Law has been of a high quality, relevant to our requirements and more importantly helped us to make the appropriate decisions that have contributed to the success of our business... View More Testimonials"
George Mukkath Managing Director Cardno Emerging Markets (UK) Ltd
"We have been working with Neil for many years now, more recently on a retained basis because he has become someone we trust and who understands our business requirements. ... View More Testimonials"
Rupert Wood CEO Wasteland Ski Ltd
"We have worked with Neil and his colleagues on a number of different company issues including business acquisitions, client contract and employment matters... View More Testimonials"
Dave Dadds CEO DRD Communications Ltd
"Starting a new venture, within a new country......I needed someone who could understand the complexities and culture of the venture...... View More Testimonials"
Maren Koros CEO Afyacore
"EM Law have supported Anexsys with a number of legal issues, ranging from drafting complex IT contracts to developing conflict policies and advising on a range of complex multi-jurisdiction legal issues... View More Testimonials"
Rob Crowley MD Anexsys Ltd
Can We Help You?
We are here to help with any of your questions.
Just click "Yes" below.
Please enter your question below
Please enter your name and email address so than we can send you a response
Thank you for sending us your question. We will contact you shortly to discuss this.
Sorry, there is a technical issue. Please contact us by telephone: 0203 637 6374