New businesses are faced with many important decisions including whether to trade as a limited company or as a sole trader/partnership.

There are many factors which need to be considered when making this decision, including the relative complexity of a company structure.

For example, just to allot shares in a company requires an understanding of some quite detailed law. First, the company must have the authorised share capital required. There must be shares in existence which are capable of being issued.

Secondly, there must be in place a valid authority for the directors to allot shares. If this is not contained in the company's Articles of Association it must be obtained by way of a resolution of shareholders.

Thirdly, the statutory pre-emption rights need to be considered. Unless disapplied these mean that new shares must be issued to existing shareholders in proportion to their shareholdings.

Fourthly, shares cannot be issued at less than their par value, usually £1. It is possible to issue shares part paid, but the company always has the right to call for the balance to be paid up.

Finally, any allotment of shares must be recorded on the prescribed form and submitted to Companies House for filing on the public record.

Failure to understand such requirements can have serious consequences. It is not uncommon for individuals who thought they were shareholders to discover that their shares have never been issued or have not been issued legally.

It is therefore important to understand such issues if trading as a limited company is the preferred option.

Jonathan Oxley is a partner with Lee & Priestley Solicitors, Bradford.

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