SHARE CAPITAL
SHARE
CAPITAL
INTRODUCTION
In a company, members will contribute money to the company. In return,
the members are issued with shares. The shares form part of a company’s share capital. The
amount of the company’s share capital is stated in the M/A: s 18(1)(c), CA
1965. This is known as authorised share capital. If a company
issues shares in excess of the authorised share capital, the issue of shares is
void – Bank of Hindustan, China and Japan Ltd v Alison (1871) LR 6 CP 222.
Thus, a company should first increase its authorised share capital. This
can be done by passing an ordinary resolution: s 62(1), CA 1965. This
means that the company must obtain at least 51% approval from the company’s
shareholders.
TYPES OF CAPITAL
Authorised share capital means the
maximum amount of share capital a company can issue.
Issued share capital means the
actual number of shares issued by the company. It should be noted that a
company is not bound to issue all its shares at the same time.
Paid up capital means the
amount actually paid by the shareholders. In some cases the shareholders may
pay for their shares in full or in part.
Called up capital means the
amount the company calls on partly paid shares.
Uncalled capital means the
remainder of the issued capital, not called up by the company.
TYPES OF SHARES
Shares are an investment in a company. Shares are moveable
property: s 98, CA 1965. The shares or other interests of any member in
a company shall be moveable property, transferable in the manner provided by
the A/A, and shall not be of the nature of immovable property. This means that
the shares can be bought, sold and bequeathed.
Shares have been defined as an interest measured by a sum of money for
the purpose of liability and interest – BORLAND’S TRUSTEE v STEEL BROS & CO
LTD [1901] 1 Ch 279.
The term ‘liability’ means the amount to be paid on the shares. The term
‘interest’ means the rights attached to the shares in terms of attending
general meetings, voting at general meetings and receipt of dividends.
A company can issue various types of shares. This is to accommodate the
different needs and preferences of different types of investors.
1. Preference shares are defined
in s 4 of CA 1965. It means a share by whatever name called, which does
not entitle the holder thereof to the right to vote at a general meeting or to
any right to participate beyond a specific amount in any distribution whether
by way of dividend, or on redemption, in a winding up, or otherwise.
Preference shares have priority of payment of
dividends over other shares.
Preference shares have priority of return of capital
in the case of a company’s winding up over other shares.
The rate of dividend is fixed in the A/A or terms of
issue.
Holders of preference shares have to voting rights at
the general meeting although they do have a right to vote at class meetings.
2. Redeemable shares are
preference shares that can be redeemed by the company: s 61, CA 1965.
Subject to this section, a company having a share capital may, if so authorised
by its A/A, issue preference shares which are, or at the option of the company
is to be, liable to be redeemed and the redemption shall be effected only on
such terms and in such manner as provided by the A/A.
3. Ordinary shares are shares
that are not preferred shares and do not have any predetermined dividend
amounts.
Payment of dividends is only after preference shares.
Return of capital in the case of the company’s winding
up is only after preference shares.
The rate of dividend is recommended by the BOD.
Holders of ordinary shares have voting rights at the
general meeting
4. Deferred shares are also
sometimes known as founders’ or promoters’ shares. They are usually taken by
the persons who formed the company or the promoters of the company. They are
known as ‘deferred’ because the holders of such shares are the last to receive
dividends and return of capital when a company is being wound up. However,
their voting power is high. Generally, one share is entitled to one vote but holders
of deferred shares will have more than one vote.
ISSUE OF SHARES
A contract is formed between a company and a shareholder when a
shareholder accepts a company’s offer – ANZ NOMINEES LTD v LENNARD OIL NL (1985)
Thus, the company’s M/A and A/A will bind
the company and its shareholders: s 33(1), CA 1965.
A company cannot issue shares at a discount – OOREGUM GOLD
MINING CO OF INDIA v ROPER [1892] AC 125. This means if the par or nominal
value of shares is RM1.00, the company cannot issue shares at below RM1.00,
e.g. RM0.80 whereby a discount of RM0.20 is given. This is because the capital
will be reduced. The idea of issuing shares is to raise capital and the share
capital must be maintained.
Furthermore, a reduction in capital means that the amount available to
repay creditors is reduced. Creditors are more concerned about issued share
capital than authorised share capital.
It would also be unfair to existing shareholders who have been issued
shares at a nominal value. This is because those issued shares at a discount
will have the same rights as those who have been issued shares at a nominal
value.
Additionally, it is in conflict with the M/A which provides that the
nominal value of the share is RM1.00.
However, if the following requirements in s 59 CA 1965 are
complied with, shares can be issued at a discount:
It must be shares of a class already issued.
It must authorised by a resolution passed at general
meeting.
The company must obtain a court order.
It must be done not less than one year after the
company is entitled to start its business.
The issue of shares at a discount must be done within
one month of the court order.
The issue of shares at a discount must first be
offered to the existing shareholders in proportion to their holding.
If it is a public company, the prospectus must contain
particulars of the discount.
There are two exceptions whereby shares may be issued at a discount
without having to comply with the requirements of s 59 CA 1965:
Convertible debentures can be issued at a discount.
The debentures will then be converted to shares provided the debentures are
converted to shares only after a reasonable time – MOSELEY V KOFFYFONTEIN MINES
LTD (1904).
Shares can be issued at a discount to underwriters
provided it is not more than 10% of the issued value of shares: s 58, CA
1965. Underwriters are those companies that are willing to take up shares
not taken by the public. This is necessary as there is no guarantee that when a
company offers shares, all the shares will be taken up.
A company is allowed to make
allotment of shares: s 54, CA 1965. However, the power is given to the
directors. The power should be exercised in the interests of the company.
Additionally, the directors must obtain approval from the existing shareholders
before issuing new shares: s 132D, CA 1965.
If a company issues shares at a value higher that the nominal value, it
is known as issue at a premium: s 60, CA 1965. For
example, if the nominal or par value is RM1 and the share is issued for RM1.50,
the premium would be RM0.50.
SHARE CAPITAL
Reviewed by Kamaruddin Mahmood
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