Authority to allot

A UK board cannot issue shares on its own initiative. It needs authority to allot from shareholders, and then, if the shares are to go to anyone other than existing holders pro rata, a special resolution disapplying pre-emption. Both are renewed each year at the annual general meeting and both are capped.

The caps are not statutory. They come from investor guidance published by the Pre-Emption Group, and their shape is a percentage of issued share capital for general corporate purposes, a further slice reserved for an acquisition or a specified capital investment, and a small allowance for a follow on offer to holders left out of a placing. The percentages have been widened over time, so a candidate should describe the structure and check the current number rather than memorise one.

The enforcement is commercial rather than legal. A board that goes beyond the guidance has not broken the law, it has spent the goodwill it needs at the next annual meeting, and index funds that cannot avoid being diluted are the holders least inclined to forgive it.

The practical effect is that the authority decides the instrument. A raise inside it can be executed overnight as a placing with almost no market risk. Anything materially larger has to be offered to existing shareholders, which means a rights issue, a prospectus and weeks of exposure.