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Corporate Law and Governance > Company Shares, Dividends, Membership > Flashcards

Company Shares, Dividends, Membership Flashcards

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1
Q

4.1. What is a share and what do you get for 1 share

A
  • intangible personal property
  • rights attached dictated by Constitution
  • owning a % of the company
  • assets belong to the company, not members
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2
Q

4.1. What is a share - interpretation and definitions

A
  • issue of shares of different values/currencies
  • paid up money or money’s worth
  • cannot be allotted at a discount
  • LTD - cannot be issued to public
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3
Q

4.2. Outline the different types of company capital

A
  • share capital
  • share premium account
  • capital conversions reserve
  • capital reduction reserve fund
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4
Q

4.2. How do you issue shares

A
  • Co constitution

- Special resolution

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5
Q

4.2. Definition of share capital

A

Aggregate value of nominal shares in the company

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6
Q

4.2. Authorised share capital

A
  • set out in the Constitution

- LTD not required

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7
Q

4.2. Shares at par/nominal value

A
  • liability to / interest in the company based on his shares
  • rarely market value
  • monetary amount
  • sh. capital divided into fixed amount
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8
Q

4.2. Issued share capital

A
  • amount of authorised share cap. actually issued to members

- nominal capital raised by the co.

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9
Q

4.2 Shares at a premium

A
  • issue of shares above its nominal value making a profit
  • also known as un-denominated capital
  • generally undistributable
  • strict rules
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10
Q

4.2. Shares at a premium - exceptions to the rule. When are they distributable?

A
  1. In case of merger - co secured +90% holding in another company
  2. Group reconstructions - allots shares for transfer of assets, other than cash
  3. For acquisition of shares of a body corporate in a takeover
  4. Finance bonus issue of shares
  5. Pay/Repay premium due on the acquisition of own shares
  6. Write-off prelim expenses
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11
Q

4.3. What is a share warrant / share bearer

A

Document issued by the company and states:

  • member is entitled to shares specified and has not received a share Cert yet
  • shares are fully paid
  • payment of future dividends

Prohibited: LTD / DAC
Allowed: PLC

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12
Q

4.4 What is a share Certificate?

A

'’Prima facie’’ evidence of title of shares, but not conclusive evidence of ownership by person named on the Cert

  • Issued within 2 mths after shares being alloted
  • Relied on by 3rd parties
  • Failure: Fine for officers and/or company
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13
Q

4.4 Share Certificate

Bloomenthal (1897)

A

Co precluded from making further calls in respect of unpaid shares where Certificate stated that shares are fully paid up.

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14
Q

4.5. Calls on shares

General

A
  • Company has right to issue ‘‘calls’’ for payment where moneys remain outstanding on shares
  • Power of directors to issue calls must be ‘bona fide’ and for benefit of company
  • No restriction on amount can be called
  • They may be revoked, postponed
  • Deemed as ‘‘called’’ when resolution is passed
  • Notice period 30 days and 1 mth between calls
  • Company Constitution can provide that they have the right to first claim on the shares where unpaid, before other shareholders
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15
Q

4.5. Calls on shares - after call is made

A

Shares may be:

  • Forfeited
  • Surrendered
  • Sold by the company
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16
Q

4.5. Calls on shares

Odessa Tramways (1878)

A

Judicial order restraining may be obtained to prevent calls made in bad faith

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17
Q

4.5. Calls on shares and reserve capital

A

Subject to terms of issue, co. can specify that it can be called up only:

  • on winding -up
    or
    -occurrence of a specific event
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18
Q

4.5. Reserve capital

A

Un-called capital reserved for a special pupose

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19
Q

4.6. Power to allot shares - meaning

A

Issuing shares to existing shareholders / 3rd parties

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20
Q

4.6. Alloting shares - how to allot

A

Directors can allot when:

  • authorised by Constitution
  • Special Resolution passed
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21
Q

4.6. Alloting shares - procedure

A

1) Application made to purchase shares
2) Offer accepted when co. issues notice that shares have been alloted

3) Notification to CRO within 1 mth detailing:
- no
- details
- sums paid

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22
Q

4.6. Alloting shares - procedure

Crawley’s (1869)

A

An offer can be revoked at any stage before the Company issues the Notice.

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23
Q

4.6. Alloting shares - duty

Jermyn Street Turkish Baths (1971)

A

Directors have duty to allot shares in good faith.

Allotment of shares by a person to obtain majority only if it was for the survival of the company

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24
Q

4.7. Pre-emption rights - meaning

A

Existing shareholders must receive first refusal on allotment of shares (14 days to consider)

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25
Q

4.7. Pre-emption rights - When do they not apply?

A
  • When the Constitution dis-applies
  • Preference shareholders
  • Non-cash consideration
  • Bonus shares
  • Employee share scheme
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26
Q

4.7. Pre-emption rights - Contravention with s.69

A

Shares remain valid, but existing shareholders may have to be compensated.

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27
Q

4.8. Bonus issue - meaning

A

Issue of shares for non-cash consideration at no charge.

Generally fully paid up.

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28
Q

4.8. Bonus issue - When does a company issue bonus shares and where from?

A

When it capitalises its profits, reserves or other funds.

29
Q

4.8. Bonus issue - To whom should they be issued?

A

To existing shareholders, in same existing proportion for shareholding

30
Q

4.8. Bonus issue - Restrictions

A
  • Cannot be capitalised from the ordinary share capital
  • Cannot be issued at a discount
  • Company cannot pay for its own shares
31
Q

4.8. Rights issue - Meaning

A

Procedure for a company to raise new share capital by offering new shares to its existing members.

32
Q

4.8. Rights issue - To whom should they be issued?

A

To existing shareholders

33
Q

4.8. Rights issue - Process

A
  1. Shareholder is offered a right to buy a certain proportion of new issue at a fixed price and at discount from existing market value.
  2. Shareholders can reject or can retain the right and sell the rights to purchase to a third party
    (Subject to Co’s Constitution)
34
Q

4.9. Classes of shares - outline 3

A
  • Ordinary shares
  • Preference shares
  • Redeemable shares
35
Q

4.9. Ordinary shares - Characteristics

A
  • Most common
  • Constitution sets rights and duties of ord. shareholders
  • Potential large dividends
  • Most exposed - Share price can drop
  • Ord. shareholders are entitled to attend & vote at AGM
36
Q

4.9. Preference shares - Characteristics

A
  • More secure
  • Fixed dividends and nothing else on top of it
  • Paid before ord. shareholders for dividends and repayment of capital
  • Dividends carried over when insufficient funds
  • Do not usually have voting rights
37
Q

4.9. Redeemable shares - Characteristics

A
  • Operate as part of a loan

- Lender purchases shares to have a greater say in the company

38
Q

4.9. Redeemable shares - Restrictions

A
  • Can be issued unless Constitution provides otherwise

Can only be purchased from:

  • available profits
  • where co. proposes to cancel shares on acquiring the redeemable shares
39
Q

4.10. Rules re company altering or varying its shares / capital

A
  • By ordinary resolution - filed with CRO
    (unless Constitution states otherwise)
  • If procedures for each share class is stated in the Constitution, that must be followed
  • Varied by consent of the shareholders owning that class of shares
  • Refuse of 10%+ - action to Court in 28 days
  • Decision adversely affecting rights withing a class does not necessarily amount to a variation
40
Q

4.10. Company altering or varying its shares / capital

Case law: Ardene Cinemas (1946)

A

10p and 50p originally with one voting right attached each.

Altered to 5 x 10 p shares - diluted the control of some members.

Did not amount to an alteration/ variation of share class.

41
Q

4.11. Rules in relation to dividends.

Where is it paid from

A

From the distributable profits

42
Q

4.11. Rules in relation to dividends.

A
  • declared by ordinary resolution at AGM
  • interim dividends can be declared also
  • no automatic right to a dividend
  • dividends do not bear interest against the company
43
Q

4.11. Rules in relation to dividends.

Amounts payable

A
  • amounts to be paid is at directors discretion and cannot be exceeded
  • fixed rate for preference shares
  • variable rate for ordinary shares
44
Q

4.11. Rules in relation to dividends.

Obligation to be paid after being declared

A
  • within 6 yrs after being declared, shareholders can enforce payment
  • on winding-up, they cease to be a debt, subject to surplus left after paying all other debts
45
Q

4.11. Rules in relation to dividends.

Payments

A
  • payable on shares paid up only
  • payment made from distributable profits only
  • no payments where no profits available
  • paid in cash, assets, paid-up shares, debentures, debenture stock of other company
  • deduction for dividends of any amounts owed by them to the company
46
Q

4.11. Rules in relation to dividends.

Unlawful payments

A

Directors / members / auditors can be held personally liable where there are reasonable grounds to believe they were distributed unlawfully

Case: Flitcrofts (1882)

47
Q

4.11. Rules in relation to dividends.

Unlawful payments

Case: Flitcrofts (1882)

A

Directors ordered to repay the amount paid in dividends where company’s assets were incorrectly represented

48
Q

4.11. Rules in relation to dividends.

Unlawful payments

Case: Thomas Gerard and sons (1967)

A

Auditors where held liable for the payment of dividends where inaccuracies in the stated assets where not investigated

49
Q

4.12. Outline the rules in relation to the disclosure of interest in shares that a director has in the co.

A
  • Directors / secretaries to disclose to company any interest they have in the company’s shares and debentures.
  • An application can be brought seeking the disclosure of interests in a co’s shares/debentures.
    Court may grant where it is ‘just and equitable’ and where to do otherwise would prejudice the financial interest of the applicant.
  • Failure to comply - unable to enforce their rights or interests.
50
Q

4.12. Outline the rules in relation to the disclosure of interest in shares that a director has in the co.

Exceptions

A
  • Hold less than 1% of shares in company
  • Hold shares in capacity as attorney/proxy;
  • Hold share options (option to purchase shares in future)
51
Q

4.13. Outline the rules re. the transfer of shares.

Definition

A

Transfer of shares: S. 66(5) CA 2014 – a share is a ‘personal estate, transferable in the manner provided for by the Articles of a company’

52
Q

4.13. Outline the rules re. the transfer of shares.

Restrictions

A

A private co may empower director to

  • refuse a transfer requiring transfer, or
  • give first refusal to existing shareholders (pre-emption rights) etc.
53
Q

4.13. Outline the rules re. the transfer of shares.

Procedure

A
  • A proper instrument of transfer must be delivered to company before share transfer can be registered
  • Sets out relevant shares and name of transferor/transferee.
  • If shareholder transferring total shares, should transfer share certificate also (to the new owner);
  • If partial transfer, share cert and transfer instrument must be lodged with company.
  • Directors of a private company allowed to refuse to register the transfer of shares, i.e. where directors disapprove of the transfer.
  • Right of veto must be in good faith and best interests of company.
54
Q

4.13. Outline the rules re. the transfer of shares.

Case: Hafner (1949)

A

Hafner (1949)

– the court invalidated a refusal to register where it was done to prevent the transferee from challenging increases in pay for directors.

  • Subject to Constitution, directors may at their absolute discretion and without reason decline to register the transfer of any share (do so within 2 months of delivery of instrument of transfer).
55
Q

4.14. Rules re. the transmission of shares.

A

Registering shares in name of:

(i) personal representative following death of shareholder OR in
(ii) name of assignee on bankruptcy of shareholder.

Once transmitted, that person becomes member.

56
Q

4.16. Rights held by a shareholder.

A

Right to:

(a) Receive a dividend
(b) Attend and vote at meetings
(c) Receive adequate notice of all meetings
(d) Participate in winding up and receive surplus assets
(e) Receive / inspect annual accounts and company registers
(f) Access to courts to vindicate the above rights

  • Personal rights: shareholder is party to a contract with company
  • Terms of contract depend on company Constitution.
  • The member’s right to enforce that contract is considered a ‘personal right’. (Vice versa, company can also seek to enforce)
  • Personal rights only enforceable in capacity as members.
57
Q

4.16. Rights held by a shareholder.

Eley v Positive Assurance (1876)

A

Eley v Positive Assurance (1876)

Court refused to allow plaintiff to rely on s. 31 on basis that provision could only be invoked in capacity as member and not in capacity as co solicitor.

58
Q

4.17. Outline the rules re the original subscribers (and subsequent members) of a company.

A

Original Subscribers:

  • Once company is registered, the original subscribers become the members of the company.
  • subscribers shall be entered onto register as members.

Nicol’s Case (1885) – Court held that a subscriber is a member even if name not entered on register of members.
Mackley’s Case (1875) – However if all of the authorised shares have been allotted to others without shares being allocated to subscriber, then he cannot be treated as a member.

Subsequent Members:
– All subsequent persons agreeing to become members and who are entered onto register deemed to be members (Thus for example agreeing to buy shares or receipt of allotment letter is not sufficient to confer membership – must be on register)

59
Q

4.17. Outline the rules re the original subscribers (and subsequent members) of a company.

Register of members

A
  • Subscriber’s name should be entered on register within 28 days of agreement with company to become member.
  • Failure to do so – company officer guilty of Category 3 offence.
  • Notice must be sent to CRO if co does not maintain register at registered office.
  • Register of membership treated as accurate recording of a company’s membership.
  • Where a person allows his name to be on register, he may be estopped (prevented) from denying his membership even where he holds no shares in the co)
60
Q

4.17. Outline the rules re the original subscribers (and subsequent members) of a company.

Various ways to become a member

A

Various ways to become a member:

(i) Allotment of shares directly by company;
(ii) Transfer of shares from existing member;
(iii) Transmission of shares (death/bankruptcy);
(iv) Estoppel – name wrongly on register and estopped from denying same (i.e. deemed to assent by virtue of delay in rectifying error).

61
Q

4.18. Rules re the eligibility of members/shareholders

A

Eligibility of Members:

Companies, bankrupts, minors etc can be members if permitted by Constitution.

(i) Minors: purchase / inherit shares with full rights, but retain right to repudiate membership (and therefore any liability to co) while still a minor (under 18).
(ii) Corporate Members: a company can become a member of another company.

62
Q

4.18. Rules re the eligibility of members/shareholders

Restrictions

A

Restrictions on company owning shares in its holding company:

  • Prohibited subsidiary co having shares in its holding co with exceptions where
    (a) subsidiary is personal representative under a will;
    (b) subsidiary is a trustee and holds shares as trust property;
    (c) company is a member and afterwards becomes subsidiary (i.e. post-takeover)
63
Q

4.18. Rules re the eligibility of members/shareholders

S. 7 CA 2014– a company is deemed to be a subsidiary of another where:

A

S. 7 CA 2014– a company is deemed to be a subsidiary of another where:

(i) other company is member and controls Board of Directors;
(ii) other company holds more than 50% nominal value of shares;
(iii) 50%+ voting rights
(iv) The superior co has right to exert a dominant influence over the other co

64
Q

4.18. Rules re the eligibility of members/shareholders

S. 114(2) CA 2014 provides other exceptions and states that a subsidiary may acquire and hold shares in its holding co where:

A

A subsidiary may acquire and hold shares in its holding co where:

1) . Consideration to buy shares comes from distributable profits
2) . Subsidiary does not exercise voting rights re shares (and void if so).
3) . Contract to buy such shares is authorised by both co’s in advance.

65
Q

4.19. Outline the requirements under the 2014 Act in relation to the keeping of a share register.

Details included in the Register

A

Register of Members: S.169 CA 2014 – a company must maintain a register of its members and enter details within 28 days to include:

(i) Names & addresses of each member
(ii) No of shares & amount paid up
(iii) date registered as member
(iv) Date ceased to be a member
(v) Where the company has converted any of its shares into stock, the register must show the amount of stock held by each member instead of the amount of shares and the particulars relating thereto.

66
Q

4.19. Outline the requirements under the 2014 Act in relation to the keeping of a share register.

Conditions

A
  • Register (along with other registers) kept at registered office (S.216 CA 2014) / location notified to CRO.
  • Should be open for inspection during business hours without charge.
  • Entry on register is prima facie evidence of membership.
  • Entry can be set-aside for fraud, misrepresentation or mistake.
  • Can be rectified to correct errors/omissions without application to court provided does not adversely affect someone / person consents.
  • Court can rectify also it incorrect entry or failure to record entry (and can award compensation for loss sustained)
67
Q

4.20. Outline rules re termination of membership

5 ways

A

Termination of Membership: No. of ways to terminate.

1) . Usually by transfer of shares.
2) . Alternatively by transmission (death/bankruptcy)
3) . By liquidation
4) . Where a company declares a forfeiture (i.e. by a member) / surrender of shares / redeems shares / causes a sale of shares under a lien etc.
5) . Membership may be terminated by the court where it directs the sale of shares under s.212.

68
Q

4.21. Outline rules re forfeiture of shares.

A

Statement required by company director / secretary that share has been forfeited and date (which is conclusive evidence of fact of forfeiture).

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