SolarWind Ltd is a private company with only one class of ordinary shares. The directors wish to allot new ordinary shares to raise capital for a new solar farm project. The company's articles do not contain any specific restrictions on allotment. Do the directors need prior authorization from the shareholders to allot these shares?

Answer options:

Yes, they must obtain an ordinary resolution from the shareholders.

Yes, they must obtain a special resolution from the shareholders.

No, directors of a private company with only one class of shares have automatic authority to allot shares of that class, unless the articles state otherwise.

No, directors always have unlimited power to allot shares in any type of company.

How to approach this question

Apply Section 550 of the Companies Act 2006 regarding the power of directors to allot shares in private companies.

Full Answer

C.No, directors of a private company with only one class of shares have automatic authority to allot shares of that class, unless the articles state otherwise.✓ Correct

Under Section 550 of the Companies Act 2006, directors of a private company with only one class of shares have automatic authority to allot shares of that same class, provided there is no restriction in the company's articles. They do not need a shareholder resolution. This simplifies administration for small companies.

Common mistakes

Applying the general rule for public companies (which require an ordinary resolution under s.551) to a simple private company.

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