ACCA Applied Skills · Corporate and Business Law (Global) · Share capital
Zentra Ltd, a company in a jurisdiction following the standard pre-emption model, proposes to issue 50,000 new ordinary shares for cash. The directors want to offer all of the shares to a new investor, Mr Okoye, who is not currently a shareholder. Which statement is correct, assuming the articles do not disapply pre-emption rights?
Where pre-emption rights apply and have not been disapplied, new ordinary shares issued for cash must first be offered to existing shareholders in proportion to their holdings. Directors' power to allot does not let them offer the shares directly to an outsider.
- AThe shares must first be offered to existing ordinary shareholders in proportion to their holdingsCorrect
- BThe directors may offer the shares to any person they choose because they control the issue
- CThe shares may be offered to Mr Okoye provided the price is not below nominal value
- DThe shares must be offered first to the company's creditors in proportion to debts owed
Explanation
Pre-emption rights require that new equity shares issued for cash be offered first to existing shareholders in proportion to their holdings. Directors cannot bypass this merely because they have authority to allot. Pricing at or above nominal value is a separate requirement and does not remove pre-emption.
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