Chapter 5

Question 1

Shares and Share Certificates

Answer 1

Definition of Shares:

Shares are a form of moveable property, carrying rights and obligations.
They are transferable from one person to another.
Payment for Shares:

A share must be paid for in full when allotted to a shareholder.
Distinctive Number:

Every share shall be distinguished by its distinctive number.
Share Certificates:

Physical Share Certificate: Issued under the signature of an authorized officer.
Book-Entry Form: Electronic evidence of share ownership.
Certificates serve as main evidence of title to shares.

Question 2

Authorized and Paid-Up Share Capital

Answer 2

Authorized Share Capital:

Maximum amount of shares (per class) that a company may issue.
Must be specified in the Memorandum of Association (MOA).
Issued and Paid-Up Share Capital:

Nominal (Face) value of shares issued to shareholders.
Issued share capital may be less than authorized but cannot exceed it.
Advertisements and Notices:

If a company mentions its authorized capital in advertisements or notices, it must also mention the amount of paid-up capital in equally prominent letters.
Penalty for non-compliance: Up to level 1.

Question 3

Fully Paid Shares

Answer 3

Issuance Requirement:

Companies must issue only fully paid shares.
Previously, partly paid shares were allowed, but now fully paid shares are mandatory.
Nominal Value:

Also known as face value or par value.
Market Value:

The value at which shares are traded on the stock exchange, usually higher than the nominal value.

Question 4

Kinds and Classes of Shares

Answer 4

Ordinary Shares:

Voting Power: Yes
Dividend: Entitled to remaining profit after payment of preference dividends.
Winding Up: Receives payment after preference shares have been paid; no further share in surplus.
Preference Shares:

Voting Power: No (usually)
Dividend: Entitled to fixed percentage dividend before ordinary shareholders.
Winding Up: Prior right to return of nominal value; no further share in surplus.
Different Classes of Shares:

May vary based on voting rights, dividend rights, bonus shares, etc.

Question 5

Variation in Share Capital

Answer 5

Types of Preference Shares:

Cumulative: Missed dividends are paid in the year of profit.
Non-Cumulative: No payment for missed dividends.
Redeemable: Can be redeemed by the company.
Irredeemable: Cannot be redeemed by the company.
Convertible: Can be converted to ordinary shares.
Procedure for Variation in Rights:

Requires alteration of Articles of Association (AOA) through a special resolution.
If variation affects rights of a particular class, requires 3/4th majority approval from that class.
Right to Challenge Variation:

Members representing at least 10% of the class can apply to court within 30 days of the resolution.
Court can declare resolution null and void if it is prejudicial to the interest of members or if facts were withheld.
Court’s decision is final; no appeal possible.
Court order must be filed with the registrar within 15 days.

Question 6

Alteration in Capital Clause

Answer 6

Allowed Alterations:

Increase share capital as deemed fit.
Cancel part of authorized capital not paid up (does not affect paid-up shareholders).
Consolidate shares into larger amounts or subdivide into smaller amounts.
Procedure:

Requires a special resolution.
Resolution and altered MOA must be filed with the registrar within 15 days.
New shares issued due to consolidation or subdivision rank equally with existing shares.