Company Law Share Capital Part 1 PDF

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Topic 4 - Shares Capital I  s 4 - share in the share capital of a corporation and includes stock except where a distinction between stock and shares is expressed or implied; 4 - Introduction  Most common type of source of finance.  Company limited by shares issues and allots shares to a sharehold...

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Topic 4 - Shares Capital I

 s 4 - share in the share capital of a corporation and includes stock except where a distinction between stock and shares is expressed or implied;

4.1 - Introduction



Most common type of source of finance.



Company limited by shares issues and allots shares to a shareholder in return for capital (money or assets)



How public company acquire public funding by offering or inviting public to subscribe to its securities = shares !

> Share / equity Capital

Me a ning o f S h a r e s Nelfi Amiera M izan FOL, M M U 2016

4.2 - Capital Structure (Types of Capital)

Borland’s Trustee v Steel Bros & Co Ltd

“a share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual

covenants

entered

into

by

all

the

i . A u t ho horr ised / N o m inal / R e g is ist t er ered ed C a pi pit ta l  Sec. 18(1) (c) CA - requires companies to state, in their MOA, the amount of their authorized or nominal capital. > It represents the maximum value of shares that the

shareholders inter se in accordance with s.33. The company can issue / total amount of capital which contract contained in the articles of association is

the company is allowed to issue.

one of the original incidents of the share” * s.33 - MA and AA binds the company and members

> share capital that company proposes to be registered and its division into shares of fixed amount



Nature of shares: s 98 CA

The shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles, and shall not be of the nature of immovable property.

> Company cannot allot shares in excess of the company’s authorised share capital

Bank of Hindustan, China & Japan Ltd v Alison Any allotment of shares in excess of the company’s - a movable property - choses in action; ownership of shares confers rights on the shareholders which are enforceable by law. - They may be bought & sold, bequeathed and given as security.

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share capital is void

ii . I s s u e d C a pi ta l 

Represents the nominal value of share capital

iv . C a ll e d u p C a pi tal 

the shares allotted.

which has been issued to its members > The nominal capital which has actually been



allotted and issued to the shareholders. 

The total amount called up by the company on

Company is entitled to make a call at a later time for some / all of the balance owing on the share.

Company is not bound to allot all its capital at once. v . R e s e r v e / U n c a l l e d C a p i ta tall

A share is issued only if the name of shareholder has been registered in the register of members in



Company may issue shares that are partly paid

respect of those shares.



Amount unpaid = reserve capital / uncalled capital

ii i. P a id u p C a pi tal 



The capital where a company has not yet called for payment of full nominal value.

The amount actually paid to a company for shares allotted / issued to a shareholder.



If a shareholder makes a full payment of the purchase price of the share, the amount received is referred to as fully paid up capital.



Conclusion: A company may issue shares up to the limit of its authorised share capital. Where shares are issued, they are allotted to the holders who become

If the company permits the shareholder to make

members after their names are entered in the

only partial payment of the total purchase price,

register of members.

such shares are referred to as partly paid up shares, with remaining balance recorded in the same company’s account as an amount that the

* The capital clause; the capital that is authorised by

company may call upon in the future (uncalled

the

capital)

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MOA

V a riation o f A u th thorised orised C a p it ital: al: s 6 2 CA How to issue shares in excess of its existing authorised share capital?

a. Increasing Authorised Capital: s 62(1)(a) CA

- If need to issue shares in excess of its existing authorised share capital, company must first increase its authorised share capital in accordance with s 62 CA.

 s 62(1)(a) - A company if so authorized by its articles may in general meeting alter the conditions of its memorandum in any one or more of the foll owing ways: (a) increase its share capital by the creation of new shares of such amount as it thinks expedient;



S62 (4) - Where a company has increased its share capital beyond the registered capital, it shall within fourteen da ys after the p assing of the resol ution authorizing t he i ncrease lodge with the Registrar notice of the increase.(CCM)



S62(5) - If any company fails to comply with subsection (4 ) the company and every officer of the company who is in default shall be guilty of an offence agai nst this Act. Penalty: One thousand ringgit. Default penalty.

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 art 40(a) - The company may from time to time by ordinary resolution— (a) increase the share capital by such sum to be divided into shares of such amount as the resolution shall prescribe;

e. Cancel shares which have not been taken:

b. Consolidation: s 62(1)(b) CA

s 62(1)(e) CA (b) con solidate and divide all o r any of its share capital into shares of larger amount than its existing shares;

- Number of shares will be reduced but capital

(e) cance l shares which at the date of the passing o f the resolution in that behalf have not be en taken or agreed to be taken by any person and diminish the amo unt of its share capital by the amount of the shares so cancelled

remains unchanged. - (each unit of share is of larger value now) 

Reduction does not result in the company contravening the rule that a company limited by

c. Conversion into stock: s 62(1)(c) CA

shares is prohibited from returning any part of its paid up share capital to its SH. This is because (c) conve rt all or any of its paid -up sh ares into stock and

shares cancelled have not been issued and thus

reconvert

the interest of creditors are not affected

that

stock

into

paid-up

shares

of

a ny

denomination;

 S 62(2) - A cancellation of shares under this section shall not be deemed to be a reduction of share capital within the meaning of this Act. d. Subdivision: s 62(1)(d) CA (d) subdivide its shares or any of them into shares of smaller amount than is fixed by the memorandum, so however that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or

- Number of shares will be increased but capital remains unchanged. - (each unit of share is of smaller value now)

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4.3. Issues and Allotment of Shares

Commonweath Homes & Investment Co Ltd v Smith (per Dixon J)

 Contractual rules: offer and acceptance

But an ‘allotment’ of shares really bears a double aspect. In the formation of a contract of membership it may be the acceptance of the offer constituted by



Invitation to the public – by company.



Offer – by the public - usually fill in a form



Acceptance - by the company when through its

assent of

directors, decides to allot shares and sends the

appropriation of a given number of shares to the

applicant a notice of allotment

allottee. Shares are personal property. Allotment,

the application or the making or authorization of an offer or counter-offer accepted by the subsequent the

allottee.

But

it

is

also the

entry in the share register and the sealing and

M e ani anin ng o f “ Al lotm lotme ent” AN D “ I s s u e ” An allotment of shares is the process in which a person is given the right to be included in the register of members within a specific company. An issuance of shares is when the person is actually issued the shares in which they are deemed entitled to.

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delivery of share certificates are matters of fact which constitute the issue of shares, considered as a form of property.

Raja Khairulzaman Shah Bin Raja Aziddin v Zaman

C on s ider a ti on of S ha res

Indah Sdn Bhd 1. Cash and non-cash consideration it

was

said

that

an

“allotment”

was

the

appropriation to a person of a certain number of



when it issues shares is CASH.

shares, but not necessarily create the status of membership even when the contract to take the

Most cases, consideration a company receives



shares is complete.

However, it is common also for companies to issue shares for a consideration OTHER THAN CASH

Re Wragg Ltd Consideration in a form other than cash is permitted

Malaysia: Allotment for consideration other than cash is valid – implied from s 54(2)(b) CA and Form 25. (2) The particula rs mentioned in paragraph (1)(d) nee d not be included in the return where a company to which subsection 166(1) applies h as allotted shares — (b) for a consideration other than ca sh and the number of persons to whom the shares have been allotted exceeds five hundred

2. Nominal/par value of shares 

Shares issued must have a nominal or par value

Meaning: Fixed amount s.18(1)(c)

Ooregum Gold Mining Co v Roper Nelfi Amiera M izan FOL, M M U 2016

Company must receive money worth equal to the

3. Fully paid and partly paid shares

nominal or par value of the shares allotted Ooregum Gold Mining Co of India Ltd v Roper Shares held by SH will only be deemed to be fully paid up when a company receives payment that is equivalent to the nominal or par value



As the co did not receive a payment that is equivalent to the par value of shares, those shares shall be deemed to be partly paid up shares



Co’s AA usually provide the co with enforceable rights against a SH who holds partly paid up shars in a co.

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W hat happ appe ens if sh shar ar areh eh eholde olde olders rs f ail to p ay u p on c a ll s ?

(a) Forfeiture on non-payment of calls 

Power to make calls is usually conferred on directors.

 Table A, art 13 - The directors may from time to time make calls upon the members in respect of any money unpaid on their shares..

 Table A, art 16-17 -

16. If a sum called in respect of a share is not paid before or on the day appointed for payment thereof, the person from wh om the sum is due shall pay interest..rate not exceeding

8

per

cent

per

annum...

17. ... forfeiture , or otherwise shall apply as if the sum had become payable by virtue of a call duly made and notified.

 Table A, art 28- 32

* Call = a debt due from the shareholder to the company



if default in payment, liable for interest ≤8% p.a.

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 steps to recover: forfeit and auction. -

director to issue a notice to errant shareholders

(b) Lien on Shares  Table A, art 9-12

requiring payment. -

notice shall name at least 14 days after service



Right of company to hold shares of members as

of notice. If shareholder fails to pay at or before the

security for repayment of a debt owing by

time appointed, shares will be liable to be forfeited.

members to company.

-

directors are allowed to forfeit unpaid shares.

-

forfeited shares may be sold or otherwise

disposed of

> Company may sell the shares in the manner provided under the articles if a sum in respect of

person whose shares are forfeited remains liable

which the lien exists is presently payable, or until

to the company for the amount unpaid on the

expiration of a specified time in a notice served on

shares, together with interest.

shareholder or the legal representative (in the case

-

of death of bankruptcy).

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P ower to is s u e s h a r es

Is s u e of S h a r es a t a di s c ou n t

 s 132D(1) CA: Rests with members of general meeting

Ooregum Gold Mining v Roper

(1) Notwithstanding anything in a company's memorandum or articles, the directors shall not, without the prior approval of the company in general meeting, exercise any power of the company to issue shares.

Co issues and allots shares to SH as being fully paid up when in fact the company has only received an amount less than the nominal or par value = issue and allotment of shares at a discount

 s 132D(6) CA: Effect of contravention of s 132D CA. (6) Any

issue

contravention

of shares of

this

made by

section

shall

a company be

void

in

Prohibition:

and

consideration given for the shares shall be recove rable

1. Contrary to s.18(1)(c) and s.214(1)(d)

accordingly.

Ooregum’s case: every member who takes shares  s 132D(7) CA: Liability of director who knowingly contravenes s 132D CA. (7) Any director who knowingly contravenes, or permits or authorizes the contravention of, this section with respect to any issue of sh ares shall be liable to compensate the compa ny and the pe rson to whom the sha re s were issued for any loss, damages or costs which the company or that person may have sustained or inc urred there by; but no proce edings to recove r any such loss,

liable to contribute their full nominal value 2. Encourage discrimination Directors choose to issue shares at discount to some of the SH 3. Infringe the rights of SH who pays the full amount In case of surplus during winding up, not fair for the

damages or costs shall be commenced, notwithstandi ng the provisions of the Limitation Act 1953, after the expiration of three years from the date of the issue.

one who paid at discount to gain as much as the one who paid full 4. Contravene s.67(1) Prohibits company from giving financial assistance

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Implication for shareholders o Shareholder continues to remain liable to pay its full nominal value to the company,

Ooregum Gold Mining Co of India Ltd v Roper Shareholder continues to remain liable to pay its full nominal value to the company

Implication for company’s officers o s.67(1) > not company but the company’s officer who is liable and committed offence under s.67(3) o Ct may order officer to pay compensation to company or any person for loss - s.67(4)

Exceptions to the rule against issuing and allotting shares at a discount  S 58 CA - covers the legitimate practice of paying underwriting commission.  S 59 - authorised by ordinary resolutions

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 S 59 CA. - (1) Subject to this section a company may issue shares at a discount of a class already issued if—

Iss Issue ue an and d A l lotm otme en t of Sh Shar ar ares es at a P rem iu m

(a) the issue of the shares at a discount is authorized by resolution passed in general meeting of the company, and is confirmed by order of the Court; (b) the resolutio n specifies the ma ximum rate of discount at which the shares are to be issued;



excess of the nominal / par value of the shares issued and allotted.

(c) at the date of the issue not less than one year has elapsed since the date on which the company was e ntitled to commence business; and (d) the sh ares are i ssued within one month after th e date on which the issue is confirmed by order of the Court or within such extended time as the Court allows.

When a company receives an amount that is in



Share premium account

Henry Head & Co Ltd v Ropner Holdings Ltd Where a company issues shares at a premium (whether in cash or in the form of other valuable consideration), CA requires that “a sum equal to the aggregate amount or value of the premium on those shares” must be transferred to “share premium account”.



Share premium account is treated as paid up share capital of the company for the purpose of share capital reduction: s 60(2) CA.



S. 60(4) - Does not have to create a premium account

if

company

issues

shares

in

consideration for the acquisition of at least 90% of the equity shares Nelfi Amiera M izan FOL, M M U 2016

 How a company can apply its share premium account: ss 60(3) CA; 67A(3) CA.

- Premium cannot be returned to shareholders otherwise than in the manner prescribed by ss 60(3) and 64 CA.

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V a l i da ti o n of S h a r es i mp r op er l y

Kelapa Sawit (Teluk Anson) Sdn Bhd v Yeoh Kim Leng

is s u ed

Application was made to validate shares that had - S 63 CA empowers the court to validate an

been issued by persons who were not the company

improper issue or allotment of shares if it thinks that

directors

it is just and equitable to make such an order. SC held: Ct should refuse to exercise to validate the shares issued. Because the person who is not - Application may be made by the company, a

directors issues and not the company. No such

shareholder or creditor of the company.

validation needed.

Millheim v Barewa Oil and Mining NL

Re Swan Brewery Co Ltd (No.2)

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 4.4 Classes of Shares

Most common types of different classes of shares in Malaysia:

(a) Ordinary/equity shares

General rule : all shares having same par value

(b) preference shares

enjoy same rights irrespective of the amounts paid....