Corporate and Business Law (Global) · Share capital

Allotment of Shares and Directors' Authority in ACCA LW

Updated 11 October 2026 · Fact-checked

Allotment is the company's act of issuing new shares to a person who then has a right to be entered as a member. In the LW Global exam, directors normally need authority from the shareholders or the articles to allot. Shares must be paid for in money or money's worth, never at a discount.

Understand Allotment of Shares and Directors' Authority

A company raises capital by allotting new shares. Allotment is when the company creates the contractual right of a person to become a shareholder. The person only becomes a member once their name is entered in the register of members.

Shareholders own the company, but directors run it. Directors could dilute existing owners by issuing many shares to friends or to themselves. So the law limits the directors' power. Directors may allot shares only if they have authority. The authority can come from the articles or from an ordinary resolution of the shareholders. The authority must state the maximum number of shares and its expiry date. A usual maximum period is five years, though it can be renewed.

The LW Global paper tests general principles rather than one country's section numbers. Treat the rules below as the standard model and answer on that basis. Some rules differ by jurisdiction, so apply the rule in the question if one is given.

Payment is the second theme. Shares have a nominal (par) value. A company may not issue a share at a discount to its nominal value. It may issue at a premium, which is any amount above nominal value. The premium goes to a share premium account, which is treated as capital. Consideration can be cash or non-cash, such as property or services in some systems. Non-cash assets may need a valuation when a public company issues the shares.

If shares are issued at a discount, the allottee must usually pay the shortfall plus interest. Directors who breach the authority rules may be liable to the company, although the allotment itself is generally still valid.

Key formulas to remember

Authority to allot: Directors can allot only with authority from the articles or an ordinary resolution; Authority states a maximum number of shares and an expiry date, usually no more than five years, though it may be renewed.
No issue at a discount: Issue price ≥ nominal value; Issuing below nominal value is prohibited. Issuing above it creates a share premium.
Share premium: Share premium = issue price − nominal value, per share; The total premium is recorded in the share premium account and treated as capital.
Consideration for shares: Payment = money or money's worth; Public companies face tighter rules on non-cash payment, such as valuation and no undertaking to do work or perform services.
Membership: Allotment gives a right to become a member; entry in the register makes the person a member; The two events happen at different times.

How to solve Allotment of Shares and Directors' Authority questions

Use this order for any scenario question on allotment of shares. It stops you jumping to payment before you check authority.

1Identify the company type, private or public, and whether the question gives a jurisdiction rule.
2Check whether the directors have authority: look in the articles or for an ordinary resolution.
3Check the limits of that authority: maximum number of shares, class and expiry date.
4Check the issue price against the nominal value. Below nominal is a prohibited discount.
5Work out any premium and say it goes to the share premium account.
6Check the type of consideration. For non-cash, note valuation or other rules for public companies.
7State the consequence: breach of authority, shortfall owed plus interest, or director liability.
8Give a short conclusion that answers the exact question asked.

Quickest way: Authority, price, payment

When to use it: Use this for one or two mark objective questions when you have under a minute.

Ask: do the directors have authority? If no, the allotment is a breach by the directors.
Compare the issue price with nominal value. Lower means a prohibited discount.
Look at what is paid: cash is fine. Services in a public company are a red flag.
Eliminate options that say the allotment is void just for lack of authority or that a discount is allowed if the board agrees.

Common mistakes in Allotment of Shares and Directors' Authority

Saying directors never need shareholder approval to issue shares.
Students remember that directors manage the company.
Fix: Remember that the power to allot is limited. Authority comes from the articles or an ordinary resolution.
Treating a share premium as profit available for dividends.
The extra money looks like a gain.
Fix: Share premium is capital. It goes to the share premium account and is protected.
Allowing shares to be issued below nominal value if shareholders agree.
Students confuse a discount with a negotiated price.
Fix: A discount to nominal value is prohibited whatever the agreement. A discount to market value is a different matter.
Confusing allotment with becoming a member.
Both seem to happen at once.
Fix: Allotment creates the right. Entry in the register of members makes the person a member.
Treating all non-cash consideration as invalid.
Students overstate the public company restrictions.
Fix: Non-cash assets are acceptable. Public companies face extra rules, such as valuation and a bar on services as payment.

Worked examples

Example 1

Bright Ltd has shares of nominal value ₹10 each. The directors allot 5,000 shares at ₹12 each. Calculate the share capital and share premium created, and say what authority the directors need.

Show the solution

Share capital = 5,000 × ₹10 = ₹50,000.
Premium per share = ₹12 − ₹10 = ₹2.
Total premium = 5,000 × ₹2 = ₹10,000.
Total received = 5,000 × ₹12 = ₹60,000, which equals ₹50,000 + ₹10,000.
The directors need authority from the articles or an ordinary resolution to allot.

Answer: Share capital of ₹50,000 and share premium of ₹10,000 are created. The directors need authority from the articles or an ordinary resolution.

Example 2

Ravi Ltd's directors, with proper authority, allot 2,000 shares of nominal value ₹5 each to Meena at ₹4 each. Is the issue permitted, and what is Meena's position?

Show the solution

Compare the issue price ₹4 with nominal value ₹5.
The price is below nominal value, so the shares are issued at a discount.
A company may not allot shares at a discount, even with proper authority.
The discount per share is ₹1, so the shortfall is 2,000 × ₹1 = ₹2,000.
Meena must normally pay the shortfall plus interest.

Answer: The issue is not permitted. Meena is liable to pay the ₹2,000 shortfall plus interest.

Exam tips

Start every scenario by checking authority, since examiners often hide a missing resolution in the facts.
Always compare issue price with nominal value before anything else.
In objective questions, reject options that allow a discount to nominal value.
In multi-task questions, write the rule first, then apply it, then state the consequence.

Practice questions from Share capital

Allotment of Shares and Directors' Authority: frequently asked questions

Do directors always need shareholder authority to allot shares?

Under the general model tested in LW Global, directors need authority from the articles or an ordinary resolution. Some private companies with one share class may have simpler rules in certain jurisdictions. Follow any rule the question gives.

Can a company issue shares at a discount?

No. The issue price may not be less than nominal value. If it happens, the allottee must usually pay the shortfall plus interest.

Can shares be paid for with non-cash assets?

Yes, money's worth is acceptable consideration. Public companies face extra safeguards, such as valuation and no payment by work or services.

What is the difference between allotment and issue?

Allotment is when the right to the shares is created. Becoming a member happens when the name is entered in the register. Exams usually test that the two are separate.