When an existing shareholder or potential investor is subscribing for shares in your company, your company will need to issue them with shares. The actual issuance of the shares is usually the last step in the process after the key agreements have been signed and any money has been paid to the company. In order to issue someone with shares, your company will need to follow a certain process. Once you have issued the shares, you will also need to notify the Australian Securities and Investments Commission (ASIC). But, what happens if you fail to complete this step? This article will outline:
- what happens if you issue shares without notifying ASIC;
- whether the shares have actually been issued; and
- what your next steps should be.
What is Share Issuance?
Share issuance is the process of providing shares to a shareholder. After you have signed all relevant agreements and the shareholder has paid for the shares, your company will issue shares to that shareholder. The process of issuing shares usually involves:
- approval (generally obtained via board or shareholder resolutions. This will depend on your company’s shareholders agreement or its constitution);
- a share subscription document (where the new shareholder applies for their shares);
- a share certificate (given to the new shareholder when the shares are issued);
- updating the Company Members Register (this is the most important step, as shares are legally issued when issuance is recorded in the Members Register); and
- notifying ASIC (you will need to notify ASIC within 28 days of the issuance occurring).
ASIC Notification
As set out above, the last step in the share issuance process is to notify ASIC within 28 days of the share issuance. The date of the share issuance is when your company updates its Members Register to reflect the issuance.
It is important to understand that you are only required to notify ASIC of any changes once they occur. This means that you must update ASIC after the issuance has occurred, rather than when the shares are issued to the shareholder. You can notify ASIC online using the ASIC portal.
The changes that you will need to notify to ASIC include the:
- change to the company’s share structure (being the number of shares that were issued); and
- names and details of any new shareholders.
What if I Did Not Update ASIC?
If you sought to issue shares but did not update ASIC, you have several options. How you fix the mistake will depend on whether or not you actually issued shares to the shareholders. If you followed the share issuance steps described above, including updating the company’s Members Register, the shares were still issued on the date recorded in the Members Register. In this case, you can simply still update ASIC online.
If you did not update ASIC and also failed to update your company’s Members Register, then the shares probably were not issued. In this case, you will need to complete all the standard steps to issue shares, including preparing any missing resolutions or share certificates and then record the issuance in the Members Register.
The date of issuance will not be the earlier date that you thought you had issued the shares. Instead, it will be the date recorded in the Members Register. Importantly, where you thought you issued shares but did not, in fact, do so legally, you should not backdate documents to reflect that earlier date.
Key Takeaways
If you are issuing shares in your company, you will need to update your Members Register to reflect this. As part of the share issuance process, your company will also need to notify ASIC that the share issuance occurred. ASIC will need to be notified within 28 days of the issuance. If you forget to update ASIC, there are ways to rectify the mistake. It is important to ensure that your share issuance is done correctly and that each member of your company holds the correct number of shares. If you require any assistance with issuing shares in your company or notifying ASIC of a share issuance, contact LegalVision’s start-up lawyers today on 1300 544 755 or fill out the form on this page.
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