Q&As

Would a breach of Model Article 21(1) make an issue of partly paid/unpaid shares void? Or would the issue be valid but require ratification? If the latter is true, what would the effect be if ratification was not provided?

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Published on LexisPSL on 07/05/2021

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • Would a breach of Model Article 21(1) make an issue of partly paid/unpaid shares void? Or would the issue be valid but require ratification? If the latter is true, what would the effect be if ratification was not provided?

Would a breach of Model Article 21(1) make an issue of partly paid/unpaid shares void? Or would the issue be valid but require ratification? If the latter is true, what would the effect be if ratification was not provided?

It is assumed that the company in question is a private company limited by shares governed by the law of England and Wales.

Article 21(1) of the Model articles—private limited company (Companies (Model Articles) Regulations 2008, SI 2008/3229, Schedule 1— model articles for private companies limited by shares) provides that ‘No share is to be issued for less than the aggregate of its nominal value and any premium to be paid to the company in consideration for its issue’ (other than the subscriber shares).

Failure to ensure that issued shares were fully paid up will not inherently make the issue void but will arise within the context of the board of directors failing to carry out their functions or otherwise exercise their powers appropriately. The first of the directors’ general duties under Part 10 of the Companies Act 2006 (CA 2006) states that a director has a duty to:

  1. only exercise powers for the purposes for which they are conferred, and

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