Legal Nature of Shares

Question 1

What does the term ‘capital’ mean?

Answer 1

Refers to the funds available to run company business

Question 2

What does share capital mean?

Answer 2

Money raised by issue of shares

Question 3

How is a share often described?

Answer 3

As a bundle of rights

Question 4

What are incentives for investing?

Answer 4

• Income (dividends)

- Capital gain (growth in value of the shares)

Question 5

What is issued share capital?

Answer 5

The amount of shares in issue at any one time

Question 6

What is a company’s ISC made up of?

Answer 6

• Shares purchased by the first members of the company, known as the ‘subscriber shares’; and
• Further shares issued after the company has been incorporated, to new or existing shareholders.

Question 7

Under s112 CA 2006 how can you become a member of a company?

Answer 7

Entered onto the register of members

Question 8

What is a company’s register of members?

Answer 8

The register is the primary source of who the members are and how many shares they own

Question 9

Which case highlights the importance of properly registering shareholders?

Answer 9

Glencoe Developments Ltd v Sneddon[2012]:

Question 10

Glencoe Developments Ltd v Sneddon[2012]?

Answer 10

It was ruled that because the register of members had not been updated, the only properly registered shareholder present at the meeting was S = no quorum = no sale

Question 11

Four ways to become a shareholder?

Answer 11

1) Initial subscriber
2) Share issue
3) Share transfer
4) Transmission

Question 12

What is an initial subscriber?

Answer 12

Where that person subscribes for the first shares issued when the company is incorporated

Question 13

What is meant by transmission of shares?

Answer 13

A mechanism by which the title to shares is devolved other than by transfer. It typically applies to devolution by death (succession/inheritance), bankruptcy or marriage.
On registration of the transmission of shares, the person entitled to the transmission becomes the shareholder of the company and is entitled to all rights and subject to all liabilities as such shareholder.
Transmission of shares is done by forwarding the necessary documents (such as a notarised copy of a death certificate) to the company.

Question 14

What is an allotment of shares?

Answer 14

An allotment of shares is a contract between the company and a new/existing shareholder under which the company agrees to issue new shares in return for the purchaser paying the subscription price.

Question 15

What type of title does allotment of shares give?

Answer 15

Equitable only

Question 16

Where in statute are directors powers to allot share?

Answer 16

s549-511 CA 2006

Question 17

Slight difference between issue and allotment of shares?

Answer 17

• Issue gives full title and is only complete once name has been entered to the register s112(2)
• Allotment only gives equitable title and an unconditional right to be included in the register

Question 18

What is a transfer of shares?

Answer 18

A transfer is a contract to sell existing shares in the company between an existing shareholder and the purchaser. The company is not a party to the contract on a transfer of shares.

Question 19

Even though s544 says shares are freely transferable, what do most private companies do to limit this?

Answer 19

The articles of most private companies restrict their members’ rights to transfer their shares, so as to ensure control over the ownership of the company.

Question 20

Can a private company offer their shares to the public?

Answer 20

No - s755

Question 21

Case that summarises the meaning of a share?

Answer 21

Borland’s Trustee v Steel Bros & Co Ltd [1901]