WS5: The Legal Nature of Shares

Question 1

What does share capital mean?

Answer 1

Amount of money raised by the issue of shares

Question 2

What is the issued share capital?

Answer 2

The amount of shares in issue at any time e.g. shares by first members (subscribers) and further shares

Question 3

What is a share?

Answer 3

Bundle of rights - and personal property. However, share ownership gives no entitlements to ownership of company assets

Question 4

How can you get shares?

Answer 4

Initial subscriber

Share issue

Share transfer - transfer from existing shareholder

Transmission - devolution by death, bankruptcy, marriage. Done by forwarding the necessary documents.

Question 5

How does someone become a member of a company?

Answer 5

When entered into a company’s register of members. Before this, stock transfer form and Stamp Duty must be paid.

Question 6

When are shares ‘allotted’?

Answer 6

When a person acquired the unconditional right to be included in the company’s register of members in respect of those shares.

This is equitable title only.

Question 7

When are shares issued?

Answer 7

One the shareholder has actually been registered in company’s register of members. Full legal title must be complete.

Question 8

Where are the rights attached to a class of shares determined?

Answer 8

Articles

Question 9

What is an ordinary share?

Answer 9

Default share position; right to vote, to dividend if declared, share of capital

CA definition: shares other than shares that as respects dividends and capital carry a right to participate only up to a specified amount in a distribution

Question 10

What is a preference share?

Answer 10

Shares entitled to have dividends paid at a predetermined rate. Can be cumulative or non-cumulative / participating / non-participating

Question 11

What is a cumulative vs non-cumulative preference share?

Answer 11

Cumulative; Where arrears of preference dividends not declared in prior years need to be paid, as well as the current year, before anything is paid to ordinary shareholders.

Non-cumulative; Only the current year’s right to a dividend is payable

Question 12

What is participating vs non-participating preference share?

Answer 12

Participating: Shareholders can also receive dividend / capital on winding up, meaning they will get both fixed preferential dividend + fraction of general dividend

Non-Participating: Shareholders recieve only their fixed preferential rights

Question 13

What is a deferred share?

Answer 13

Right to dividend / capital after preference AND ordinary shareholders

Uncommon

Question 14

What is a redeemable share?

Answer 14

Shares which the company can buy back at a later date

Question 15

What is a non-voting share?

Answer 15

Issued when company seeks to restrict contract of the company

Question 16

What is a convertible share?

Answer 16

Can be converted to a different type of share in the issuing company

Question 17

What is an employees’ share?

Answer 17

Ordinary shares for employees subject to transfer restrictions; tax advantages

Question 18

What presumption applies to class rights?

Answer 18

All shares have equal rights unless there is an express provision to the contrary

Question 19

How are class rights varied?

Answer 19

In accordance with articles or otherwise;

75% of in value of shares of affected class consent in writing
Or a special resolution is passed at a separate meeting of the holders of the affected class of shares.

This cannot happen if class rights are entrenched in articles/

Question 20

What is the principle underpinning class right variations?

Answer 20

Dominant purpose must be to benefit the class as a whole.

Also, variations which affect only the exercise of the right as opposed to the right themselves are not caught in S630 procedure.

Question 21

Principles on variation vs exercise of rights:

Answer 21

Increase of shares may dilute proportion but does not affect class rights.

More people enjoying the same rights is not affecting the rights themselves.

Question 22

How can shareholders challenge a variation?

Answer 22

Shareholders at least holding 15% of the issued shares of that class may challenge a variation

Variation must be challenged in court within 21 days of the date which consent was given / resolution was passed to vary rights.

Common law ground of challenge: resolution to vary class rights must be exercised for the purpose / dominant purpose of benefitting class as a whole.