Share Allotment Explained: A Complete Guide for UK Companies

Ryan Patrick

Aug 5, 2026 • 11 min read

A share allotment is the process by which a UK company creates and allocates new shares to a person or organisation. It is commonly used when a company brings in an investor, raises funding, rewards employees, changes its ownership structure or gives existing shareholders additional shares.

For founders, the distinction between a share allotment and a share transfer is crucial. A transfer moves existing shares from one owner to another. An allotment creates or allocates new shares, which can increase the company's issued share capital and change the percentage ownership of existing shareholders. The process is governed principally by the Companies Act 2006, alongside the company's articles of association and, where relevant, a shareholders' agreement.

This guide explains what share allotment means, how it works, the Companies House filing requirements, pre-emption rights, dilution, different ways shares can be paid for, and the mistakes companies should avoid.

A share allotment occurs when a company gives someone an unconditional right to be issued with shares. In practical terms, it is the mechanism through which a company allocates new shares to a shareholder. For example, suppose a UK company has:

1,000 ordinary shares in issue;
Founder A owns 600;
Founder B owns 400.

The company wants to raise money from Investor C and agrees to allot 500 new ordinary shares to the investor. After the allotment, there are 1,500 shares:

Founder A: 600 shares — 40%
Founder B: 400 shares — 26.67%
Investor C: 500 shares — 33.33%

The founders have not sold their existing shares. Instead, new shares have been created and allocated, reducing their percentage ownership. This is known as dilution. Companies House describes allotment as the process through which a company can increase its share capital by allotting additional shares.

The difference is simple but legally significant.

Share Allotment	Share Transfer
New shares are allotted	Existing shares are transferred
Can increase issued share capital	Does not normally increase total shares
Company creates additional ownership interests	Existing ownership interests change hands
Usually requires SH01 filing	Usually reflected in the confirmation statement
Can dilute existing shareholders	Usually does not dilute shareholders overall
Often used for fundraising	Often used for shareholder exits or sales

If a founder sells 100 existing shares to an investor, that is generally a transfer. If the company creates 100 new shares and gives them to the investor, that is an allotment.

Why Do Companies Allot New Shares?

Share allotments are useful for more than just raising investment.

Raising investment

A startup may allot shares to an investor in exchange for new funding. This is one of the most common reasons for an allotment.

Bringing in a new founder

A new co-founder may receive newly allotted shares in exchange for capital, intellectual property, expertise or another agreed contribution.

Employee incentives

Companies may allot shares as part of an employee share scheme or incentive arrangement. The tax treatment of employee shares can be complicated, so specialist advice may be appropriate.

Business acquisitions

Shares can sometimes be issued as consideration for acquiring another business or assets.

Restructuring ownership

A company may reorganise its share capital by creating new shares or new classes of shares with different rights.

Bonus shares

A company may also allot bonus shares in certain circumstances, although the accounting and legal requirements differ from a straightforward cash investment.

Who Has the Authority to Allot Shares?

This is one of the most important parts of the process. Directors normally allot shares on behalf of the company, but they need the appropriate authority to do so. Companies House guidance explains that directors allot shares on the company's behalf and that authority must come from the company's articles or an appropriate company resolution, subject to specific statutory rules.

For a private company incorporated under the Companies Act 2006 that has only one class of shares following the allotment, there is an important statutory exception to the usual prior-authorisation requirement, unless the articles restrict this position. The safest approach is therefore not to assume that directors automatically have unlimited authority. Before an allotment, check:

the company's articles;
existing shareholder rights;
any shareholders' agreement;
the company's current share classes;
whether the directors have authority to allot;
whether shareholder approval is required.

For more complicated funding rounds, legal advice can prevent an apparently simple allotment from creating problems later.

Pre-Emption Rights and New Shares

Existing shareholders can have pre-emption rights over new shares. Broadly, these rights are designed to give existing shareholders an opportunity to maintain their proportionate ownership when a company issues new equity.

For example, if you own 30% of a company and the company wants to issue new shares to an outside investor, pre-emption provisions may require those shares to be offered to existing shareholders first. The position depends on the statutory rules, the company's articles and any shareholder agreements or resolutions affecting those rights.

This matters particularly for startups. A founder who owns 70% today could find themselves with 45% after a fundraising round if new shares are issued without sufficient attention to dilution and investor rights. Before allotting shares to a third party, determine whether pre-emption rights apply and whether they need to be followed or validly disapplied.

A typical allotment involves several stages.

1. Agree the commercial terms

The company should establish:

who will receive the shares;
how many shares will be allotted;
the share class;
nominal value;
issue price;
amount payable;
whether the shares are fully or partly paid;
whether payment will be in cash or another form;
what percentage ownership the new shareholder will have after completion.

This is where founders should think beyond the immediate transaction. A £100,000 investment may look attractive, but the real question is how much of the company is being given away in exchange for it.

2. Review the company's constitution

Check the articles of association and shareholders' agreement. Look specifically for:

restrictions on allotment;
investor consent rights;
pre-emption provisions;
rights attached to different share classes;
reserved matters;
director authority requirements.

3. Obtain the necessary authority

Depending on the company's circumstances, directors may need an existing authority under the articles or shareholder approval before proceeding. Where shareholder approval is required, the correct resolution should be passed and properly recorded.

4. Approve the allotment

The company should formally document the decision to allot shares. This may involve board minutes, board resolutions and, where applicable, shareholder resolutions. The documentation should clearly identify the number and class of shares being allotted and the relevant terms.

5. Receive consideration

Shares can be paid for in different ways. Cash is common, but Companies House guidance recognises that shares in a private company can be paid for using various forms of consideration, including goods, services, property, goodwill, know-how or shares in another company. Non-cash consideration requires particular care because valuation, accounting and legal issues can arise.

6. Update the company's records

Once the allotment has been completed, the company should update its statutory records. This includes the register of members and share information. The company should also issue a share certificate where appropriate.

7. File the SH01 with Companies House

The company generally needs to file a SH01 Return of Allotment of Shares with Companies House. Companies House provides an online filing route for SH01. The current SH01 requires details including:

allotment date;
class of shares;
number of shares allotted;
nominal value;
amount paid per share;
amount unpaid;
currency;
non-cash consideration, where applicable.

When Must a Company File SH01?

For most companies, the return of allotment must be delivered to the Registrar within one month of the date of the allotment. This deadline should be treated as a compliance deadline rather than something to leave until the next confirmation statement.

The SH01 is an event-driven filing: the company reports the change in its share capital because the allotment has happened. Companies House's current filing resources identify SH01 as the relevant return of allotment form. A useful internal control is to put the SH01 deadline in the company's compliance calendar immediately after the allotment date.

What Information Goes on an SH01?

The SH01 is more than a simple notification that "new shares were issued." It records the company's updated share capital position. The form asks for information such as:

the allotment date;
number of shares allotted;
class of shares;
nominal value of each share;
amount paid per share;
amount unpaid;
currency;
details of non-cash consideration where relevant.

For example, if a company allots 10,000 ordinary shares with a nominal value of £0.01 each at £2 per share, the company needs to correctly distinguish the nominal value from the amount paid, including any share premium. This distinction is important for accurate corporate records.

What Happens to Existing Shareholders?

The effect depends on how many new shares are issued. Imagine a company has 1,000 shares:

Alice: 500
Ben: 300
Chloe: 200

Alice therefore owns 50%.The company then allots 1,000 new shares to Investor D. There are now 2,000 shares:

Alice: 500 — 25%
Ben: 300 — 15%
Chloe: 200 — 10%
Investor D: 1,000 — 50%

Alice still owns 500 shares. Her number of shares has not decreased, but her percentage ownership has fallen from 50% to 25%. That is dilution. For founders, this is why a funding round should always be assessed on a fully diluted ownership basis, rather than focusing only on the amount of money being invested.

Different Classes of Shares

Not all shares need to carry identical rights. A company may have, for example:

ordinary shares;
preference shares;
alphabet shares;
growth shares;
other classes created under its articles.

Different classes can have different rights concerning:

voting;
dividends;
capital distributions;
conversion;
redemption;
investor protections.

If a company is creating a new class of shares, the legal and constitutional work becomes more involved. Do not simply choose a different share class on the SH01 without first establishing that the class exists and that its rights are properly documented.

Can Shares Be Allotted Below Market Value?

A company can allot shares at different prices, but the commercial and legal consequences need to be considered. For example, a startup might allot shares to an investor at a price substantially below what an existing investor paid. That can affect:

existing shareholder value;
pre-emption rights;
investor agreements;
tax;
accounting;
employment-related arrangements;
future fundraising.

Where shares are being issued to directors, employees, connected parties or in exchange for non-cash consideration, additional tax and legal questions may arise. A low share price is not automatically a problem, but it should be properly documented and commercially defensible.

UK companies are increasingly used by founders who live outside the UK. A non-resident investor or founder can potentially receive shares in a UK company, but cross-border transactions can introduce additional considerations. These may include:

tax residence;
valuation;
foreign exchange;
overseas tax obligations;
beneficial ownership;
reporting requirements;
investor documentation.

For example, a UK company raising funds from an overseas corporate investor should consider both UK company law requirements and the legal and tax rules relevant to the investor's jurisdiction. International founders should avoid treating a UK share allotment as purely a Companies House filing exercise.

It can. A Person with Significant Control (PSC) is someone who meets the relevant statutory criteria for significant control over a company. A new share allotment can change voting percentages or ownership sufficiently to create a new PSC or cause an existing PSC to cease qualifying.

For example, if a founder initially controls 60% of a company but a major allotment reduces that person's ownership and control below the applicable threshold, the company's PSC position may need to be reviewed. The company should therefore assess its PSC information after a material allotment rather than assuming the SH01 is the only filing required.

Confusing allotment with transfer: This can lead to the wrong paperwork and incorrect Companies House records.
Forgetting the SH01 deadline: An allotment is not something to simply include in the next confirmation statement.
Ignoring pre-emption rights: Existing shareholders may have statutory or contractual rights that need to be dealt with before new shares are allotted.
Failing to document director authority: A company should establish that the allotment was properly authorised.
Getting the share capital figures wrong: Nominal value, number of shares, amount paid and share premium must be accurately recorded.
Forgetting dilution: Founders sometimes focus on the investment amount without calculating the new ownership percentages.
Ignoring PSC implications: A substantial allotment can change who controls the company.
Treating non-cash consideration casually: Shares issued in exchange for services, property, intellectual property or another company's shares may require additional documentation and professional advice.

Before completing an allotment, check:

[ ] What is the commercial reason for the allotment?
[ ] How many shares are being created?
[ ] What class of shares will be allotted?
[ ] What is their nominal value?
[ ] What is the issue price?
[ ] Are the shares fully or partly paid?
[ ] Is payment in cash or non-cash consideration?
[ ] Do the articles restrict the allotment?
[ ] Do pre-emption rights apply?
[ ] Do the directors have authority to allot?
[ ] Is shareholder approval required?
[ ] Has the allotment been formally approved?
[ ] Has the register of members been updated?
[ ] Have share certificates been dealt with?
[ ] Has the SH01 been filed within the required deadline?
[ ] Has the PSC position been reviewed?
[ ] Have accounting and tax records been updated?

Frequently Asked Questions

Share allotment is the process through which a company allocates new shares to a person or organisation, giving that person an unconditional right to be issued with those shares.

The terms are closely related but are not always used identically. Allotment refers to the decision or process by which the right to shares is allocated, while shares are issued when the person becomes registered as a member. Companies House explains the distinction in its guidance on company life-cycle filings.

What is an SH01?

SH01 is the Return of Allotment of Shares used to notify Companies House about an allotment and the resulting share capital information. Companies House provides online filing for SH01.

How long do I have to file an SH01?

The return of allotment generally needs to be delivered to Companies House within one month of the allotment.

Can a private company allot shares without shareholder approval?

Sometimes. The Companies Act 2006 provides circumstances in which directors of certain private companies can allot shares without separate prior shareholder authorisation. The company's articles and existing share structure must be considered, so directors should not assume they automatically have unlimited authority.

Does allotting shares dilute existing shareholders?

Usually, yes, if new shares are allotted to someone else. Existing shareholders may retain exactly the same number of shares but own a smaller percentage of the company.

Can shares be allotted in exchange for services?

Shares can potentially be allotted for non-cash consideration, and Companies House specifically recognises various forms of non-cash consideration. However, valuation, tax, accounting and legal issues can make these arrangements more complicated than a straightforward cash investment.

It can. If the allotment changes ownership or control sufficiently, the company should review its PSC position and make any required updates.

Stamp Duty is generally associated with transfers or purchases of existing shares rather than the straightforward allotment of new shares by a company. However, complex transactions can have different tax consequences and should be reviewed based on their exact structure.

Final Thoughts

Share allotment is one of the most useful mechanisms available to a growing UK company. It can bring in investment, create employee incentives, introduce new founders and restructure ownership without requiring existing shareholders to sell their shares. But issuing new shares also changes the company's capital structure and can dilute existing ownership.

The safest approach is to treat an allotment as a complete corporate process: check the company's constitution, confirm authority, consider pre-emption rights, agree the commercial terms, formally approve the allotment, update company records, file the SH01 on time and review PSC information. For founders, the most important lesson is to look beyond the paperwork. A share allotment changes who owns the company and potentially who controls it. That makes the percentage ownership, share class, investor rights and long-term dilution just as important as getting the Companies House filing correct.

For international entrepreneurs using a UK company structure, this becomes even more important. IncorpUK, as a UK company formation and management platform for global founders, operates in an environment where accurate corporate records and timely filings are essential. Whether the allotment is part of a seed investment, founder restructuring or employee incentive plan, good documentation at the outset can prevent much more expensive problems later.

What Is a Share Allotment?

Share Allotment vs Share Transfer