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Q：
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What is issuance of shares otherwise than for cash?
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A：
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Issuance of shares otherwise than for cash means a company allot new shares to shareholders in exchange for non-cash consideration, rather than direct monetary payment. The non-cash consideration can include assets, acquisition of another business or conversion of existing debt into equity.
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Q：
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Why issue shares otherwise than for cash?
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A：
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One of the most common reasons to issue shares for non-cash consideration is debt conversion. When a director injects personal funds into a company for working capital, it creates a director's loan, leaving the company indebted to him/her. To strengthen the balance sheet and alleviate this debt burden, the company can capitalise the loan by converting the outstanding debt into new shares allotted to the director.
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Q：
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How many shares will be issued?
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A：
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To determine how many shares will be issued, the company must first establish the monetary value of the non-cash consideration. For complex or non-monetary assets, an independent qualified professional will prepare a valuation report to determine this value. Once the total value is confirmed and the share price is agreed upon by the board, the number of shares to be issued is calculated by dividing the total asset value by the share price.
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Q：
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What documents are usually required before allotment?
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While requirements may vary for every allotment, the following documents are commonly requested:
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Latest Management Account
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Valuation Report (if applicable)
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Sales & Purchase Agreements (if applicable)
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Due Diligence Report (if applicable)
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Q：
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Will the shares ownership be diluted?
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A：
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Yes, issuing new shares to a single party will automatically decrease the ownership percentages of all other existing shareholders. To address this, shareholders can exercise their pre-emption rights (also known as rights of first refusal). By law or under the company's constitution, existing shareholders typically have the right to be offered new shares first, in proportion to their current holdings, before they are issued to anyone else. If the other shareholders choose to exercise this right by injecting cash to purchase their share of the new allotment, they can successfully maintain their ownership percentages and prevent dilution.
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Q：
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What is the procedure to issue new shares otherwise than for cash?
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To issue shares for non-cash consideration, the company first determines the total value of the asset or debt, the share price, and the number of shares to be issued. Once these terms are finalised based on a supporting agreement or valuation report, the necessary Directors' and Shareholders' Resolutions will be drafted and signed. After the resolutions are duly executed, the necessary lodgements must be submitted to the Registrar within the statutory 14-day deadline to officially update the company's records.
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FAQ
