Free Disapplicaiton of Pre-Emption Rights – Shareholder Written Resolution Generator

Use the form below to generate a free shareholder resolution that, when passed, will have disapplied shareholder preemption rights. This is generally needed for a startup to issue new shares to new or existing investors (e.g. via a share subscription agreement).

Create your Free Written Resolution

Fill in the form below to have a free customised written resolution emailed to you in Word format. No credit card, sign-up or subscription needed.

Please provide the exact name of the company as registered.

Enter the company registration number as found on your official documents.

Provide the full address as registered with Companies House.

Specify the date you will circulate (send) this resolution to shareholders.

Enter the final date by which shareholder responses must be received for this resolution. This Companies Act 2006 requires that this must be not be less than 28 days from the date this resolution is sent out, so if, for example, you choose 45 days that should be ample. Note that if sufficient responses are received before the lapse date, the resolution passes as of the date the sufficient responses are received.

Specify the maximum number of shares that can be allotted under this authority. Include the number and the class.

Given this resolution must be out for a minimum of 28 days, you should probably choose a date 2 months or more from the circulation date to give yourselves time to allot the shares. From the company perspective, the more time the better.

This will be the person in the company who is collecting the responses.

Enter the email address you want us to send your contract to. This may take a couple of minutes to arrive.

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Guide to Shareholder Written Resolutions for the Disapplicaiton of Pre-Emption Rights

In the intricate world of corporate governance and shareholder relations, the management of pre-emption rights stands out as a critical area that demands meticulous attention and understanding. Pre-emption rights, which allow existing shareholders to maintain their proportional ownership in a company by having the first opportunity to buy additional shares before they are offered to external parties, are a fundamental aspect of equity management. However, there are circumstances under which companies, especially those in England and Wales, may seek to disapply these rights for strategic purposes. This article delves into the nuances of disapplying pre-emption rights, taking a closer look at the legal grounds for doing so, common pitfalls, the process of implementing a shareholder written resolution to this effect, and the subsequent reporting and compliance obligations. Aimed at businesses navigating this complex terrain, our objective is to provide a comprehensive guide to making informed decisions and executing the disapplication of pre-emption rights effectively.

Understanding Pre-Emption Rights Basics

Pre-emption rights are enshrined in company law to protect shareholders from dilution of their ownership stake. Essentially, when a company decides to issue new shares, these rights give existing shareholders the first refusal to purchase additional shares in proportion to their current holding. This mechanism ensures that shareholders can maintain their percentage of ownership and voting power within the company, safeguarding against undue influence from new investors. However, pre-emption rights are not absolute and can be modified or disapplied with the proper legal and procedural framework in place.

The rationale behind pre-emption rights is to balance the need for companies to raise new capital with the protection of existing shareholders’ interests. While these rights support fairness and equity among shareholders, they can also pose constraints on a company’s agility in securing funding or strategic partners. For example, in fast-moving markets, the time it takes to offer new shares to existing shareholders before going to external parties can result in missed opportunities.

In startup fundraising, when doing a second round onwards, startups will usually without exception have to get these resolutions passed.

Legal Grounds for Disapplication in England and Wales

In England and Wales, the Companies Act 2006 provides the statutory basis for disapplying pre-emption rights. Specifically, sections 570 to 573 of the Act allow companies to issue shares without offering them to existing shareholders first, but this requires a special resolution passed by the shareholders. This resolution must be precise in its scope and duration, typically not exceeding five years, and must clearly specify the maximum amount of shares that can be allotted without adhering to pre-emption rights.

The legal framework necessitates a clear rationale for disapplying pre-emption rights, which could include financing acquisitions, incentivizing employees through share schemes, or raising capital more swiftly than the pre-emption process allows. It’s crucial for companies to articulate the business case for this action, ensuring shareholders understand the strategic benefits and potential impacts on their ownership stakes.

Common Pitfalls and How to Avoid Them

One of the most common pitfalls in the process of disapplying pre-emption rights is failing to adequately communicate with shareholders about the reasons and expected outcomes of the resolution. Lack of transparency can lead to distrust and opposition, potentially derailing the resolution. To avoid this, companies should engage in open dialogue with shareholders, providing comprehensive details about the necessity and strategic advantages of disapplying pre-emption rights.

Another pitfall is not adhering to the legal requirements for passing a special resolution, such as ensuring the correct notice period and obtaining the requisite majority vote. This can result in the resolution being invalid, exposing the company to legal challenges and shareholder disputes. Companies must meticulously follow the procedural steps outlined in the Companies Act 2006 and their own articles of association.

Implementing the Resolution: Do’s and Don’ts

When implementing a shareholder written resolution to disapply pre-emption rights, there are several best practices to follow. Do ensure that the resolution is drafted clearly, specifying the reasons for disapplication, the exact number of shares affected, and the timeframe within which the disapplication applies. This clarity helps in gaining shareholder support and provides a solid legal foundation for the action.

Don’t bypass the importance of shareholder communication and engagement throughout the process. It’s essential to present a compelling case for why disapplying pre-emption rights is in the best interest of the company and its shareholders. Also, don’t underestimate the value of seeking legal and financial advice to navigate the complexities of this process, ensuring compliance with all regulatory requirements.

Post-Resolution: Reporting and Compliance Obligations

Following the successful passage of a resolution to disapply pre-emption rights, a company must adhere to specific reporting and compliance duties. This includes filing the resolution with Companies House within 15 days, updating the company’s shareholder register, and incorporating the changes into the annual report and accounts. These steps are crucial for maintaining transparency and fulfilling legal obligations.

Moreover, companies should continue to engage with shareholders, providing updates on how the disapplication of pre-emption rights is shaping the company’s strategic direction and financial health. Ongoing communication fosters a positive relationship with shareholders, reinforcing their confidence in the company’s governance practices.

Navigating the disapplication of pre-emption rights requires a delicate balance between strategic corporate objectives and the protection of shareholder interests. By understanding the legal framework, avoiding common pitfalls, and adhering to best practices for implementing resolutions and fulfilling post-resolution obligations, businesses in England and Wales can effectively manage this process. This not only ensures compliance with legal requirements but also secures shareholder support and confidence, paving the way for successful capital raising and strategic initiatives. As companies continue to evolve in a rapidly changing business landscape, the ability to adeptly manage pre-emption rights remains a cornerstone of sound corporate governance and shareholder relations.

Contact us or fill in the form on this page if you want a quote for a lawyer to take care of this for you.

Want to read more about shareholder written resolutions? Go here.

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