UK Companies Act S593

Valuation Report

Independent experts must prepare the necessary valuation documents before any shares can be issued. Under the UK Companies Act S593, this report must be compiled by a qualified auditor who is independent of the company and the subscriber. The auditor must state that the value of the non-cash asset is at least equal to the nominal value of the shares being allotted.

This assessment must be sent to the proposed share subscriber and filed with Companies House.

Share Allotment

Completion of the transaction is only legally valid after the valuation report has been received and filed. If a public company allocates shares without complying with the UK Companies Act S593, the recipient of the shares is liable to pay the company the full nominal value of the shares in cash plus interest. This severe penalty protects creditors and future investors from companies that issue shares supported by worthless or overvalued assets.

This risk highlights the necessity of strict compliance during corporate acquisitions. It also places a heavy burden of due diligence on the legal advisers of both the company and the share subscriber.

Exemption Rule

Exceptions to this valuation requirement exist under specific corporate restructuring scenarios. The rules do not apply to an allotment of shares in connection with a proposed merger with another company or a share-for-share exchange where all the shares of another company are being acquired. These exemptions facilitate corporate reorganizations without the administrative burden and expense of an independent valuation.

This allows companies to consolidate operations or execute takeovers more efficiently.