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Section 561 the companies act 2006

Posted on Wednesday, 6th January 2016 by

Section 561 of the Companies Act 2006 governs the statutory rights of pre-emption in a situation whereby a company allots shares.

Section 561 of the Companies Act 2006

 

 

 

 

 

Where a company decides to allot shares to a person who is not an existing shareholder, it cannot do so without first offering these shares to its existing shareholders to the proportion (in nominal value) held by the shareholders on the same or more favourable terms. This is known as the right of pre-emption.

The company can only allot shares to another person if:

  1. It has made an offer to the existing shareholders who already hold shares in the company in the proportion held by them on the same or more favourable terms; and
  2. The time limit given to the shareholder to accept the offer has expired.

The period given to the shareholders to accept such an offer must not be less than 14 days.

Pre-emption rights are important for shareholder protection because they enable current shareholders to maintain their percentage shareholding in the company upon a new issue of shares. For private companies pre-emption requirements in the Companies Act 2006 may be excluded by the articles of association.

For more information on company or commercial law in general, please do not hesitate to contact EHL’s business law department on 0116 266 5394.

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our solicitors who will be happy and able to advise you on your own particular circumstances.

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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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