The Companies Act 2006 abolishes the need for companies limited by shares to have an authorised share capital. This change takes effect on 1 October 2009 and is subject to transitional rules for existing companies.

Position under the Companies Act 1985

Authorised share capital is the amount of share capital that a company is authorised by its shareholders to issue. Under the 1985 Act a company limited by shares must have:

  • authorised but unissued share capital; and
  • shareholder authorisation to allot that share capital,

in order to issue and allot new shares.

Authorised share capital in theory acts as a ceiling on the amount of capital the directors can issue. However, companies often incorporate headroom in setting the amount. Often the authorised share capital bears little relation to the issued share capital and has little practical significance.

Position under the Companies Act 2006

The 2006 Act does not require a company limited by shares to have an authorised share capital. A company's directors will be able to issue shares by board resolution. Shareholders who wish to restrict the directors' power to do this will need to include suitable provision in the company's articles of association.

Directors will still require shareholder authorisation to allot shares. However, this is subject to a new exception which applies to private companies with only one class of share capital. Directors of those companies will be able to allot new shares of the same class without a shareholder resolution, subject to any prohibition in the company's articles.

There will be no requirement to state a company's authorised share capital in its constitutional documents. On an allotment of shares (or any other change in its capital) a company will have to file a statement of capital which will include information about the total number of the shares of the company.

Effect of the change on existing companies

Transitional rules in the Eighth Commencement Order provide that the authorised share capital of an existing company will from 1 October 2009 take effect as a provision of the company's articles setting the maximum amount of shares that may be allotted by the company. Those rules also provide that a company will be able to amend or revoke the authorised share capital by ordinary resolution even though the authorised share capital is deemed to form part of the articles. (Alternatively, a company may by special resolution adopt new articles post 1 October 2009 with no restriction on the maximum allotment of shares.)