ExpertMedium2 marksMultiple Choice
ACCA · Question 13 · Capital and the financing of companies
Section A
Which TWO of the following statements regarding the allotment of shares in a private limited company are correct?
Section A
Which TWO of the following statements regarding the allotment of shares in a private limited company are correct?
Answer options:
A.
Directors of a private company with only one class of shares always need shareholder approval to allot new shares.
B.
Directors of a private company with only one class of shares have automatic authority to allot shares unless restricted by the articles.
C.
Pre-emption rights require new shares to be offered to the public before existing shareholders.
D.
Pre-emption rights require new equity shares to be offered to existing shareholders in proportion to their current holdings.
How to approach this question
Recall the rules for directors' authority to allot shares in private companies and the definition of pre-emption rights.
Full Answer
Under the Companies Act 2006, directors of a private company with only one class of shares have automatic authority to allot shares of that class, unless the articles restrict this. Statutory pre-emption rights dictate that new equity shares must first be offered to existing shareholders pro-rata to protect them from dilution.
Common mistakes
Assuming directors always need a resolution to allot shares, or misunderstanding who benefits from pre-emption rights.
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