Founders build their first cap table in a spreadsheet. Then the first employee needs equity, a friend puts in £15,000 for 5%, an angel offers £75,000 at a valuation nobody has yet calculated — and within eighteen months of incorporation the register of members no longer matches the spreadsheet, the SH01 was never filed for one allotment, and the PSC register still shows the pre-money holdings. A diligence lawyer or a bank reviewer will find this inside ten minutes.
The Companies Act 2006 is precise about how shares are issued in a UK Limited Company. The mechanics themselves are simple. What breaks cap tables is that founders treat the paperwork as administrative rather than constitutive — signing subscription letters, taking money in, updating a spreadsheet, and forgetting that the legal position only changes when the register of members is updated, the SH01 is filed and the PSC register is brought current. This guide walks the sequence in the order the statute expects.
The cap table is a legal instrument, not a spreadsheet
Three parties will read your share history in the life of a private company: a bank, an investor's diligence lawyer, and — if you exit — a buyer's counsel. Each is looking for the same thing: a clean, complete, chronological chain from incorporation to the current holdings. Every allotment, transfer, buy-back or subdivision must reconcile across four sources — the register of members, the share certificates, the Companies House filings and the PSC register.
When these disagree, the register of members prevails as the legal record. But a mismatch is fatal in practice. Banks freeze onboarding pending clarification. Investors demand a rectification order and warranty disclosures. Buyers price the ambiguity into the deal or walk. The cost of fixing a cap table under diligence pressure is routinely £15,000–£40,000 in legal fees, plus the opportunity cost of delay. The cost of getting it right at each allotment is a signed board minute, a register update, and a form.
The statutory pre-emption right and how to disapply it
Section 561 gives existing shareholders a statutory right to be offered new equity securities before they can be issued to anyone else, in proportion to their existing holdings. The offer must be open for at least 14 days. This is a real right, not a formality: an allotment made without the offer, and without disapplication, is voidable at the shareholder's option and directors are personally liable for any loss.
Two disapplication routes exist. Under section 570, a special resolution (75% majority) can disapply pre-emption generally, matching the directors' section 551 authority. Under section 571, a special resolution disapplies pre-emption for a specific allotment, with directors recommending it and a written statement circulated with the notice. Fundraising rounds routinely use section 570 wide-form disapplications; small ad hoc issues can use section 571.
Articles can also modify the default. Many bespoke articles pre- disapply pre-emption for shares issued under an approved option plan, for shares issued to a specific person named in the articles, or up to a nominal cap. Read the articles carefully before writing the resolution; the wrong route is a common defect on later diligence.
Nominal value, premium and the share premium account
Every share has a nominal (par) value fixed by the articles — usually £0.01, £0.10 or £1. This is not the price. It is the accounting floor: shares cannot be issued at a price below nominal value (Companies Act 2006, section 580). Everything paid above nominal value is share premium and credits a separate capital reserve called the share premium account.
Worked example. A founder holds 90,000 ordinary shares of £0.01 nominal value. An angel invests £50,000 for 10,000 new shares at a £5.00 subscription price. The allotment: 10,000 shares × £0.01 = £100 to share capital; 10,000 × £4.99 = £49,900 to share premium. The angel receives 10% post-money. The founder's stake dilutes from 100% to 90%. This must be recorded correctly in the accounts and on the SH01 — a common error is treating the full £50,000 as share capital, which locks it up as non-distributable and requires a capital reduction to unwind.
Share premium is a capital reserve, not distributable profit. Attempting to pay dividends out of share premium is unlawful distribution — directors are personally liable to repay. Reducing share premium to distributable reserves requires a capital reduction: a special resolution supported by a solvency statement, filed at Companies House. Not difficult, but not something to discover the day before an exit.
The eight-step allotment process
Read the articles. Under Model Articles for a company with a single share class, directors have automatic authority under section 550. Multi-class companies need a section 551 authority — either in the articles or granted by ordinary resolution, valid for up to five years.
If existing shareholders are not being offered the shares first, disapply the statutory pre-emption right under section 570 or 571 by special resolution (75% majority). Investor rounds almost always require this.
Set nominal value and premium separately. Draft a subscription letter or investment agreement covering warranties, completion mechanics, and any conditions precedent. Non-cash consideration needs an independent valuation for public companies; private companies do not, but keep evidence.
Directors pass a board resolution approving the allotment, the register entry and the issue of share certificates. Minute it. If cash consideration is involved, confirm the funds have cleared — banks flag reverse-order allotments where money arrives after the certificate.
Enter the new shareholder immediately in the statutory register. The register — not the SH01 — is the legal record of ownership. Failure to update it before Companies House filing is one of the most common defects auditors and diligence lawyers flag.
Issue certificates within two months of allotment (Companies Act 2006, section 769). Number them, sign under the articles' execution clause and record the certificate number against the register entry.
Within one month of the allotment date. Include number, class, nominal value, amount paid and unpaid, currency and any premium. Multiple allotments on the same day can be combined; different classes need separate SH01s.
If any holding crossed a 25%, 50% or 75% band — or a new PSC arose — update the internal PSC register within 14 days and notify Companies House on PSC01–PSC09 within a further 14 days. Banks re-read this before every periodic review.
Modelling dilution before you allot
Every allotment should be modelled on a fully diluted basis before the board meeting. Fully diluted means: current shares in issue, plus all outstanding options and warrants, plus the proposed allotment, plus any convertible instruments (SAFEs, convertible loan notes, advance subscription agreements). Founders are routinely surprised to discover that a SAFE issued two years ago and a 12% option pool leave them at 51% after a round they modelled at 65%.
Convertibles are the most under-modelled instrument. A £250,000 SAFE with a £5m cap and 20% discount will typically convert to between 5% and 8% of the post-money cap table depending on the priced round. Model the conversion at the cap, at the discount, and at the actual round price — take the founder-worst outcome and plan around it.
Option pool math causes the second-biggest surprise. Investors usually require a "post-money option pool refresh" of 10–15%, meaning the pool is topped up before their money comes in. The dilution falls entirely on existing shareholders. A £1m round at a £4m pre-money with a 10% post-money pool refresh dilutes founders by roughly 27%, not the 20% the headline suggests.
Rule of thumb we give clients: before you sign a term sheet or a subscription letter, produce a five-column cap table showing current, post-conversion, post-option-pool-refresh, post-round, and post-any-anti-dilution. If you cannot generate all five in twenty minutes, you are not ready to allot.
Six defects we fix every week
The allotment is voidable at the option of any shareholder whose statutory right was ignored. Directors are personally liable for compensation. Fix requires a shareholder ratification resolution and, in serious cases, court application.
£1 nominal issued at £10 means £1 goes to share capital and £9 to share premium. Recording the whole £10 as share capital inflates capital, blocks distributions, and requires a capital reduction to unwind. The share premium account is a separate capital reserve.
The SH01 is a Companies House filing, not the legal record. If the register is not updated in the same board meeting, the new shareholder is not legally a member — no voting rights, no dividends, no valid transfer chain. This is diligence poison.
An allotment that pushes an existing 22% holder to 28% crosses the 25% band and needs a PSC filing. Missing it is a criminal offence under Part 21A of the Companies Act 2006 — and banks flag mismatched PSC data immediately.
Every day past the one-month deadline is a strict-liability offence for every director. No fine schedule replaces the criminal record. Companies House does accept late filings, but the offence remains logged.
Bespoke articles frequently restrict share issues — investor consent rights, drag-along triggers, or ratchet clauses. An allotment breaching these is voidable and, in venture-backed companies, will typically breach warranties in the shareholders' agreement.
Cap table review and share allotments
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Book an advisor call →Allotting shares — advisor answers
Can we issue shares for services rather than cash?+
Yes — private companies can accept non-cash consideration including services, IP or goodwill. Record the value carefully in the SH01 and board minutes, and note that HMRC will treat shares issued for past services as employment income. Independent valuations are not legally required for private companies but are prudent evidence.
How quickly must new shareholders appear on Companies House?+
The public record updates when SH01 is filed and processed — typically 24 to 72 hours after submission. Confirmation statements catch anything not filed by SH01 at the annual anniversary, but never rely on that: banks and diligence lawyers expect real-time SH01 filings.
Do we need a shareholders' agreement in place first?+
Legally no, commercially almost always yes. Issuing shares to a new investor without an agreement leaves reserved matters, transfer restrictions, drag/tag rights and warranties unresolved. Once shares are issued, the leverage to negotiate these terms is materially reduced.
What if the money never arrives after we allot?+
Shares can be issued 'partly paid' or 'nil paid' — but the amount unpaid remains a debt owed to the company by the shareholder. Include it on SH01 as unpaid. Better practice: hold funds in an escrow or client account and allot only on completion.
Does allotting new shares dilute existing option holders?+
Option agreements typically fix the exercise price and share count at grant. A share issue at a higher price does not adjust unexercised options unless the plan rules include anti-dilution. Bonus issues and sub-divisions do adjust — read the plan rules before allotting.
How do we issue shares to a non-UK resident investor?+
Identically to a UK resident — nationality and tax residence do not affect the allotment mechanics. Confirm the investor's identity for AML records, run sanctions checks, and ensure any payment clears from a source your bank will accept. Non-resident holders crossing 25% still trigger PSC filings.
This article is general guidance based on the Companies Act 2006 and Companies House practice current at July 2026. It is not a substitute for tailored legal or tax advice. UK Company Experts is a trading name of Seven Oak Prestige Ltd.
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