WS5: The Legal Nature of Shares Flashcards
What does share capital mean?
Amount of money raised by the issue of shares
What is the issued share capital?
The amount of shares in issue at any time e.g. shares by first members (subscribers) and further shares
What is a share?
Bundle of rights - and personal property. However, share ownership gives no entitlements to ownership of company assets
How can you get shares?
Initial subscriber
Share issue
Share transfer - transfer from existing shareholder
Transmission - devolution by death, bankruptcy, marriage. Done by forwarding the necessary documents.
How does someone become a member of a company?
When entered into a company’s register of members. Before this, stock transfer form and Stamp Duty must be paid.
When are shares ‘allotted’?
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.
When are shares issued?
One the shareholder has actually been registered in company’s register of members. Full legal title must be complete.
Where are the rights attached to a class of shares determined?
Articles
What is an ordinary share?
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
What is a preference share?
Shares entitled to have dividends paid at a predetermined rate. Can be cumulative or non-cumulative / participating / non-participating
What is a cumulative vs non-cumulative preference share?
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
What is participating vs non-participating preference share?
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
What is a deferred share?
Right to dividend / capital after preference AND ordinary shareholders
Uncommon
What is a redeemable share?
Shares which the company can buy back at a later date
What is a non-voting share?
Issued when company seeks to restrict contract of the company
What is a convertible share?
Can be converted to a different type of share in the issuing company
What is an employees’ share?
Ordinary shares for employees subject to transfer restrictions; tax advantages
What presumption applies to class rights?
All shares have equal rights unless there is an express provision to the contrary
How are class rights varied?
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/
What is the principle underpinning class right variations?
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.
Principles on variation vs exercise of rights:
Increase of shares may dilute proportion but does not affect class rights.
More people enjoying the same rights is not affecting the rights themselves.
How can shareholders challenge a variation?
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.
