63. Return as to allotments by private companies Flashcards
- Return as to allotments by private companies
General overview
[63.01] This section deals with the formalities that must be satisfied to perfect an allotment of shares in a private company. Presumably, under contract law, the purchaser of shares hold the equitable title to shares once a binding contact comes into existence, pending the lodgment of the return as to allotments pursuant to s 63. Hence, the legal title to the shares passes to the allottee only when the return as to allotment is lodged with ACRA.
Allotment of shares
[63.02] An allotment of shares takes place when the company enters into a binding contract with the investor to sell a share in return for payment of a price, and the investor acquires an unconditional right to be included as a member in the company’s register of members. Contract law principles apply to the contract for purchase of shares through a public bid: Dickson Trading (S) Pte Ltd v Transmarco Ltd [1987] SLR(R) 674; [1987] SGHC 59, HC. The legal effect of an allotment, which is an appropriation to a person of a certain number of shares but not necessarily of any specific shares, depends on circumstances, for it may be an offer of shares to the allottee or an acceptance of an application for shares by him, but an allotment of itself does not necessarily create the status of membership, even when the contract to take the shares is complete: Spitzal v Chinese Corp Ltd (1889) 80 LT 347. A resolution to allot shares is not necessarily the issue of them, as the term “issue” would appear to mean allotment followed by registration or possibly by some other act, distinct from allotment, whereby the title of the allottee becomes complete (Re Ambrose Lake Tin & Copper Co (Clarke’s Case) (1978) 8 Ch D 635): Raja Khairulzaman Shah bin Raja Aziddin & Ors v Zaman Indah Sdn Bhd [1979] 2 MLJ 181.
Is an “allottee” a member?
[63.03] The allottee of preference shares could not assert rights as a shareholder (including the right to claim for dividends) until he was actually registered as such. Until that time, he was only at most in the position of an applicant for an issue of shares or possibly as a special creditor. An allotment of itself did not necessarily create the status of membership even when the contract to take the shares was complete. The shareholder must first be registered as such before he could assert his rights: Re Chloride Eastern Industries [1995] 4 MLJ 95, HC.
Issued shares
[63.04] On the other hand, shares are issued when the investor’s name is registered in the register of members, i.e. issued capital. Paid-up capital is so much of the issued capital as is represented by money which the shareholders have in fact paid. There may be a balance that is unpaid on the shares, which becomes due for payment when a call is made, i.e. uncalled capital. Nowadays, shares are usually fully paid up, so the issued capital and paid-up capital are identical. The “called up share capital” comprises the aggregate paid-up capital plus capital that has been called up, whether or not paid. See s 161 where the board shall not exercise the power to issue shares unless approved by the general meeting. However, the protection within s 161 would be fully afforded by an informal and unanimous consent and approval of all the members of a company: Jimat bin Awang & Ors v Lai Wee Ngen [1995] 3 SLR(R) 496; [1995] SGCA 77, CA. Where the memorandum and articles provide for separate meetings to be held if new preference shares are issued, a meeting by the single existing preference shareholder who signed the resolution is valid and the new issue of preference shares ranking equally with existing preference shares is valid: East v Bennet Bros Ltd [1911] 1 Ch 163, Ch D .
Return of allotment
[63.05] The previous s 63 is repealed and replaced by a new s 63 which relates to private companies, and s 63A which relates to public companies, on the allotment of shares. The particulars to be stated in the prescribed form on the return of allotment of shares are provided in s 63(1). An agreement to take up shares in a company is binding when the consideration for the shares have been received by the company that had decided to defer the issue of shares: Merchant Credit Pte Ltd v Industrial & Commercial Realty Co Ltd [1983–1984] SLR(R) 13; [1983] SGPC 3, PC. An allotment of shares was irregular and void if the cheques received by the company were dishonoured upon their presentation: Mears v Western Canada Pulp and Paper Co Ltd [1905] 2 Ch 353, CA .
[63.06] Where the articles provide that the first directors have to take up qualification shares, there is no implied agreement that he has agreed to take up the shares: Re Printing Telegraph and Construction Co of the Agence Havas, Ex p Cammell [1894] 2 Ch 392, CA . A shareholder who had taken up preference shares issued upon an invalid resolution cannot rescind the contract after she had sold the shares to a transferee: Linz v Electric Wire Co of Palestine Ltd [1948] 1 AC 371, PC ; Rowland v Divall [1923] 2 KB 500 not followed. An allotment of shares may be subject to the moratorium that the shares would not be sold, assigned or disposed of without the prior written consent of the company: Pacrim Investments Pte Ltd v Tan Mui Keow Claire & Anor [2005] 1 SLR(R) 141; [2004] SGHC 240, HC. A contract need not be made directly between the allottee of the shares and the company the shares of which are to be issued, and it need not show on the face of it which particular shares are to be allotted, although the onus lies on the allottee to show that his shares are within the registered contract: Re Common Petroleum Engine Co, Elsner and Mcarthur’s case [1895] 2 Ch 759, Ch D ; Re New Eberhardt Co (1889) 43 Ch D 118 distinguished. The purpose of a contract of allotment is to show what shares are not to be paid for in cash, and the nature of the consideration other than cash which is to be given, but not to compel disclosure of the agreement in all its details: Re African Gold Concessions and Development Co, Markham and Darter’s case [1899] 2 Ch 480, CA . Where the letter of allotment had not been received by the applicant, the contract to take shares would still have been binding upon the applicant as soon as the letter was posted: Re Imperial Land Co of Marseilles Wall’s case (1872-73) LR 15 Eq 18 , Equity.
Effect of voidable contract on winding up
[63.07] A member who has been induced by fraud and misrepresentation to take up shares in a company is entitled to rescind the contract even though the court had made an order to wind up the company
[63.08] A liquidator in the voluntary winding up of a company is an officer of the company and it is his duty to pay out of the assets of the company the stamp duty in respect of any unfiled contract constituting the title of an allottee of shares allotted for a consideration other than cash, and to file the contract when duly stamped: Re X. Co Ltd [1907] 2 Ch 92, Ch D . A share certificate stating that shares were fully paid up when they were not raised an estoppel against the company in favour of the member who would not need to contribute as a contributory in the winding up of the company
Deemed allotment
[63.09] This would include an issue of bonus shares to existing shareholders or script dividends.
Equity-based employee incentive plans
[63.10] The US securities laws have mandatory reporting requirements of such shareholder approved plans. After much consideration, the Steering Committee recommended not to introduce the US style reporting requirements for equity-based incentive plans, preferring to follow the UK, Australia and New Zealand which do not have such reporting requirements (see the Report of the Steering Committee for the Review of the Companies Act, April 2011, Chapter 5, paras 42–45). For vesting of employee share options
