CHAPTER 16 SHARE CAPITAL

PART E CAPITAL AND THE FINANCING OF COMPANIES

CHAPTER 16 SHARE CAPITAL

INTRODUCTION

In this chapter the nature of share capital is explained. You should note (and

not confuse) the different types of capital that are important for company law

purposes.

The rest of the chapter discusses procedural matters relating to the issue and

transfer of shares. You will see that there are built-in safeguards to protect

members' rights, pre-emption rights and the necessity for directors to be

authorised to allot shares. There are also safeguards that ensure that a

company receives sufficient consideration for its shares.

Study guide

Intellectual level

E Capital and the financing of companies

1 Share capital

(a) Examine the different meanings of capital 2

(b) Illustrate the difference between various classes of shares 2

(c) Explain the procedure for altering class rights 2

Exam guide

Share capital is an important syllabus area that lends itself well to different types of question. You may be

required to distinguish between different types of share and explain what class rights are and how they

can be altered.

1 Members

A member of a company is a person who has agreed to become a member, and whose name has been

entered in the register of members. This may occur by: subscription to the memorandum; applying for

shares; the presentation to the company of a transfer of shares to the prospective member; applying as

personal representative of a deceased member or a trustee of a bankrupt.

1.1 Becoming a member

A member of a company is a person who has agreed to be a member and whose name has been entered

in the register of members.

Entry in the register is essential. Mere delivery to the company of a transfer of shares does not make the

transferor a member – until the transfer is entered in the register.

1.2 Subscriber shares

Subscribers to the memorandum are deemed to have agreed to become members of the company. As

soon as the company is formed their names should be entered in the register of members.

Other persons may acquire shares and become members:

• By applying and being allotted shares

• By presenting to the company for registration a transfer of shares to them

• By applying as personal representative or trustee of a

– Deceased member

– Bankrupt member

1.3 Ceasing to be a member

There are eight ways in which a member ceases to be so.

A member ceases to be a member in any of the following circumstances.

• He transfers all his shares to another person and the transfer is registered.

• The member dies.

• The shares of a bankrupt member are registered in the name of his trustee.

• A member who is a minor repudiates his shares.

• The trustee of a bankrupt member disclaims his shares.

• The company forfeits or accepts the surrender of shares.

• The company sells them in exercise of a lien.

• The company is dissolved and ceases to exist.

1.4 The number of members

Public and private companies must have a minimum of one member (s 7). There is no maximum

number.

Public and private companies must have a minimum of one member (s 7). There is no maximum

number. Where a company has a sole member, the following rules will apply.

(a) The register of members must contain a statement that there is only one member and give his

address.

(b) Quorum. The Act automatically permits a quorum of one for general meetings.

2 The nature of shares and capital

A share is a transferable form of property, carrying rights and obligations, by which the interest of a

member of a company limited by shares is measured.

2.1 Shares 6/08, 12/08

A share is 'the interest of a shareholder in the company measured by a sum of money, for the purpose of

a liability in the first place, and of interest in the second, but also consisting of a series of mutual

covenants entered into by all the shareholders inter se': Borland's Trustee v Steel Bros & Co Ltd 1901.

The key points in this definition are:

• The share must be paid for ('liability'). The nominal value of the share fixes this liability, it is the

base price of the share eg a £1 ordinary share.

• It gives a proportionate entitlement to dividends, votes and any return of capital ('interest').

• It is a form of bargain ('mutual covenants') between shareholders which underlies such principles

as majority control and minority protection.

A share's nominal value is its face value. So a £1 ordinary share for instance, has a nominal value of £1.

No share can be issued at a value below its nominal value.

A share is a form of personal property, carrying rights and obligations. It is by its nature transferable.

A member who holds one or more shares is a shareholder. However some companies (such as most

companies limited by guarantee) do not have a share capital. So they have members who are not also

shareholders.

Information about any special rights attached to shares is obtainable from one of the following

documents which are on the file at Companies House:

• The articles, which are the normal context in which share rights are defined.

• A resolution or agreement incidental to the creation of a new class of shares (copies must be

delivered to the Registrar).

• A statement of capital given to the Registrar within one month of allotment, together with the

return of allotment.

2.2 Types of capital

The term 'capital' is used in several senses in company legislation, to mean issued, allotted or called up

share capital or loan capital.

2.2.1 Authorised share capital

Under previous company legislation, companies had to specify a maximum authorised share capital that

it could issue. Under the 2006 Act, the concept of authorised share capital was removed.

2.2.2 Issued and allotted share capital

Issued and allotted share capital is the type, class, number and amount of the shares issued and allotted to

specific shareholders, including shares taken on formation by the subscribers to the memorandum

A company need not issue all its share capital at once. If it retains a part, this is unissued share capital.

Issued share capital can be increased through the allotment of shares (s 617), see Section 4.

Rights issues and the issue of bonus shares (see later) will also increase the amount of a company's

capital.

2.2.3 Called up and paid up share capital 12/07, 12/08

Called up share capital is the amount which the company has required shareholders to pay now or in the

future on the shares issued.

Paid up share capital is the amount which shareholders have actually paid on the shares issued and called up.

For example, a company has issued and allotted 70 £1 (nominal value) shares, has received 25p per share

on application and has called on members for a second 25p. Therefore its issued and allotted share capital

is £70 and its called up share capital is £35 (50p per share). When the members pay the call, the 'paid up'

share capital is then £35 also. Capital not yet called is 'uncalled capital'. Called capital which is not yet

paid is termed 'partly paid'; the company therefore has an outstanding claim against its shareholders and

this debt is transferred to the new shareholder if the share is transferred.

As we saw earlier, on allotment public companies must receive at least one quarter of the nominal value

of the shares paid up, plus the whole of any premium.

2.2.4 Loan capital

Loan capital comprises debentures and other long-term loans to a business.

Loan capital, in contrast with the above, is the term used to describe borrowed money obtained usually by

the issue of debentures. It is nothing to do with shares.

2.3 Market value 12/08

Shares of a public company are freely transferable (providing the appropriate procedures are followed)

and therefore may be subsequently sold by some or all of the shareholders. The sale price will not

necessarily be the nominal value, rather it will reflect the prospects of the company and therefore may be

greater or less than the nominal value.

3 Types of share

If the constitution of a company states no differences between shares, it is assumed that they are all

ordinary shares with parallel rights and obligations. There may, however, be other types, notably

preference shares and redeemable shares.

3.1 Ordinary shares (equity) 6/08

If no differences between shares are expressed then all shares are equity shares with the same rights,

known as ordinary shares.

Equity is the residual interest in the assets of the company after deducting all its liabilities. It comprises

issued share capital excluding any part of that does not carry any right to participate beyond a specified

amount in a distribution.

Equity share capital is a company's issued share capital less capital which carries preferential rights.

Ordinary shares are shares which entitle the holders to the remaining divisible profits (and, in a

liquidation, the assets) after prior interests, eg creditors and prior charge capital, have been satisfied.

3.2 Class rights

Class rights are rights which are attached to particular types of shares by the company's constitution.

A company may at its option attach special rights to different shares regarding:

• Dividends

• Return of capital

• Voting

• The right to appoint or remove a director

Shares which have different rights from others are grouped together with other shares carrying identical

rights to form a class.

The most common types of share capital with different rights are preference shares and ordinary shares.

There may also be ordinary shares with voting rights and ordinary shares without voting rights.

3.3 Preference shares 6/08

The most common right of preference shareholders is a prior right to receive a fixed dividend. This right is

not a right to compel payment of a dividend, but it is cumulative unless otherwise stated. Usually,

preference shareholders cannot participate in a dividend over and above their fixed dividend and cease to

be entitled to arrears of undeclared dividends when the company goes into liquidation.

Preference shares are shares carrying one or more rights such as a fixed rate of dividend or preferential

claim to any company profits available for distribution.

A preference share may and generally will carry a prior right to receive an annual dividend of fixed

amount, say a dividend of 6% of the share's nominal value.

Ordinary and preference shares are deemed to have identical rights. However, a company's articles or

resolutions may create differences between them.

As regards the priority dividend entitlement, four points should be noted.

(a) The right is merely to receive a dividend at the specified rate before any other dividend may be

paid or declared. It is not a right to compel the company to pay the dividend, (Bond v Barrow

Haematite Steel Co 1902). The company can decline to pay the dividend if it decides to transfer

available profits to reserves instead of using the profits to pay the preference dividend.

(b) The right to receive a preference dividend is deemed to be cumulative unless the contrary is

stated. If, therefore, a 6% dividend is not paid in Year 1, the priority entitlement is normally carried

forward to Year 2, increasing the priority right for that year to 12% – and so on.

When arrears of cumulative dividend are paid, the holders of the shares at the time when the

dividend is declared are entitled to the whole of it even though they did not hold the shares in the

year to which the arrears relate.

An intention that preference shares should not carry forward an entitlement to arrears is usually

expressed by the word 'non-cumulative'.

(c) If a company which has arrears of unpaid cumulative preference dividends goes into

liquidation, the preference shareholders cease to be entitled to the arrears unless:

(i) A dividend has been declared though not yet paid when liquidation commences.

(ii) The articles (or other terms of issue) expressly provide that in a liquidation arrears are to

be paid in priority to return of capital to members.

(d) Holders of preference shares have no entitlement to participate in any additional dividend over

and above their specified rate. If, for example, a 6% dividend is paid on 6% preference shares,

the entire balance of available profit may then be distributed to the holders of ordinary shares.

This rule also may be expressly overridden by the terms of issue. For example, the articles may

provide that the preference shares are to receive a priority 6% dividend and are also to participate

equally in any dividends payable after the ordinary shares have received a 6% dividend. Preference

shares with these rights are called participating preference shares.

In all other respects preference shares carry the same rights as ordinary shares unless otherwise stated.

If they do rank equally they carry the same rights, no more and no less, to return of capital, distribution of

surplus assets and voting.

In practice, it is unusual to issue preference shares on this basis. More usually, it is expressly provided that:

(a) The preference shares are to carry a priority right to return of capital.

(b) They are not to carry a right to vote, or voting is permitted in specified circumstances. For

example failure to pay the preference dividend, variation of their rights or a resolution to wind up.

When preference shares carry a priority right to return of capital the result is that:

(a) The amount paid up on the preference shares, say £1 on each £1 share, is to be repaid in

liquidation before anything is repaid to ordinary shareholders.

(b) Unless otherwise stated, the holders of the preference shares are not entitled to share in surplus

assets when the ordinary share capital has been repaid.

3.3.1 Advantages and disadvantages of preference shares

The advantages of preference shares are greater security of income and (if they carry priority in

repayment of capital) greater security of capital. However in a period of persistent inflation, the benefit of

entitlement to fixed income and to capital fixed in money terms is an illusion.

A number of other drawbacks and pitfalls, such as loss of arrears, winding up and enforced payment,

have been indicated above. Preference shares may be said to fall between the two stools of risk and

reward (as seen in ordinary shares) and security (debentures).

Exam questions in this area often require an explanation of the types of share (as in June 2008) or

explanations of share terminology (as in December 2008).

3.4 Variation of class rights

The holders of issued shares have vested rights which can only be varied by using a strict procedure. The

standard procedure is by special resolution passed by at least three quarters of the votes cast at a

separate class meeting or by written consent.

A variation of class rights is an alteration in the position of shareholders with regard to those rights or

duties which they have by virtue of their shares.

The holders of issued shares have vested rights which can only be varied by the company with the

consent of all the holders or with such consent of a majority as is specified (usually) in the articles. The

standard procedure for variation of class rights requires that a special resolution shall be passed by a

three quarters majority cast either at a separate meeting of the class, or by written consent: s 630. If any

other requirements are imposed by the company's articles then these must also be followed.

3.4.1 When variation rules apply

It is not a variation of class rights to issue shares to new members, to subdivide shares of another class,

to return capital to preference shareholders, or to create a new class of preference shareholders.

It is only necessary to follow the variation of class rights procedure if what is proposed amounts to a

variation of class rights. There are many types of transaction that do not actually constitute a variation of

class rights.

3.4.2 Examples: Not a variation of class rights

(a) To issue shares of the same class to allottees who are not already members of the class (unless

the defined class rights prohibit this).

White v Bristol Aeroplane Co Ltd 1953

The facts: The company made a bonus issue of new ordinary and preference shares to the existing

ordinary shareholders who alone were entitled under the articles to participate in bonus issues. The

existing preference shareholders objected. They stated that reducing their proportion of the class of

preference shares (by issuing the bonus of preference shares) was a variation of class rights to

which they had not consented.

Decision: This was not a variation of class rights since the existing preference shareholders had the

same number of shares (and votes at a class meeting) as before.

(b) To subdivide shares of another class with the incidental effect of increasing the voting strength

of that other class.

Greenhalgh v Arderne Cinemas Ltd 1946

The facts: The company had two classes of ordinary shares, 50p shares and 10p shares. Every

share carried one vote. A resolution was passed to subdivide each 50p share into five 10p shares,

thus multiplying the votes of that class by five.

Decision: The rights of the original 10p shares had not been varied since they still had one vote per

share as before.

(c) To return capital to the holders of preference shares: House of Fraser plc v ACGE Investments

Ltd 1987.

(d) To create and issue a new class of preference shares with priority over an existing class of

ordinary shares: Re John Smith's Tadcaster Brewery Co Ltd 1953.

The cases cited in the preceding paragraph illustrate the principle that without a 'literal variation' of class

rights there is no alteration of rights to which the safeguards of proper procedure and appeal to the court

apply. The fact that the value of existing rights may be affected will not concern the court if the rights are

unchanged.

Knowledge of what does not constitute a variation of class rights is vital in this area.

3.4.3 Special situations

To deal with unusual special situations which in the past caused some difficulty, the following rules

apply.

(a) If the class rights are set by the articles and they provide a variation procedure, that procedure

must be followed for any variation even if it is less onerous than the statutory procedure.

(b) If class rights are defined otherwise than by the articles and there is no variation procedure,

consent of a three quarters majority of the class is both necessary and sufficient.

The rules on notice, voting, polls, circulation of resolutions and quorum relating to general meetings

relate also to class meetings when voting on alteration of class rights.

3.4.4 Minority appeals to the court for unfair prejudice

A dissenting minority holding 15% or more of the issued shares may apply to the court within 21 days of

class consent to have the variation cancelled as 'unfairly prejudicial'.

Whenever class rights are varied under a procedure contained in the constitution, a minority of holders of

shares of the class may apply to the court to have the variation cancelled. The objectors together must:

• Hold not less than 15% of the issued shares of the class in question

• Not themselves have consented to or voted in favour of the variation

• Apply to the court within 21 days of the consent being given by the class s 633.

The court can either approve the variation as made or cancel it as 'unfairly prejudicial'. It cannot,

however, modify the terms of the variation.

To establish that a variation is 'unfairly prejudicial' to the class, the minority must show that the majority

was seeking some advantage to themselves as members of a different class instead of considering the

interests of the class in which they were then voting.

3.5 Redeemable shares

Redeemable shares, which are shares issued on terms that they may be bought back by a company

either at a future specific date or at the shareholder's or company's option.

QUESTION Types of share

Give brief definitions of the following types of share.

(a) Equity share

(b) Ordinary share

(c) Preference share

ANSWER

 (a) An equity share is a share which gives the holder the right to participate in the company's surplus

profit and capital. In a winding up the holder is entitled to a repayment of the nominal value plus a

share of surplus assets. The term equity share embraces ordinary shares but also includes

preference shares when the terms of issue include either the right to an additional dividend or the

right to surplus assets in a winding up.

(b) An ordinary share is the more common type of equity share, as discussed in (a) above. The

dividend is payable only when preference dividends, including arrears, have been paid.

(c) Preference shares carry a prior right to receive an annual dividend of a fixed amount, usually as a

percentage of the share's nominal value. There are no other implied differences between preference

and ordinary shares, although there may be express differences between them. For example,

preference shares may carry a priority right to return of capital. Generally preference shares do not

carry voting rights in the company other than those relating to their own class. Unless otherwise

stated, dividends allocated to preference shares are assumed to be cumulative. This means that, if

the company does not make sufficient profits to pay a dividend in one year, the arrears are carried

forward to future years.

3.6 Statement of capital and initial shareholdings 12/08

A return known as a statement of capital and initial shareholdings is required to be made to the

Registrar in certain circumstances, such as when the company is registered.

This statement must give the following details in respect of the share capital of the company and be up to

date as of the statement date.

(a) The total number of shares of the company

(b) The aggregate nominal value of the shares

(c) For each class of share:

(i) The prescribed particulars of any rights attached

(ii) The total number of shares in the class

(iii) The aggregate nominal value of shares in the class

(d) The amount paid up and the amount (if any) unpaid on each share, either on account of the

nominal value of the share or by way of premium.

(e) Information that identifies the subscribers to the memorandum of association.

(f) In respect of each subscriber, the number, nominal value and class of shares taken by them on

formation and the amount to be paid up.

4 Allotment of shares

Directors exercise the delegated power to allot shares, either by virtue of the articles or a resolution in

general meeting.

4.1 Definition

Allotment of shares is the issue and allocation to a person of a certain number of shares under a contract

of allotment. Once the shares are allotted and the holder is entered in the register of members, the holder

becomes a member of the company. The member is issued with a share certificate.

The allotment of shares is a form of contract. The intending shareholder applies to the company for

shares, and the company accepts the offer.

The terms 'allotment' and 'issue' have slightly different meanings.

(a) A share is allotted when the person to whom it is allotted acquires an unconditional right to be

entered in the register of members as the holder of that share. That stage is reached when the

board of directors (to whom the power to allot shares is usually given) considers the application

and formally resolves to allot the shares.

However if the directors imposed a condition, for instance that the shares should be allotted only on

receipt of the subscription money, the allotment would only take effect when payment was made.

(b) The issue of shares is not a defined term but is usually taken to be a later stage at which the

allottee receives a letter of allotment or share certificate issued by the company.

The allotment of shares of a private company is a simple and immediate matter. The name of the allottee

is usually entered in the register of members soon after the allotment of shares to him. They then become

a member.

4.2 Public company allotment of shares

There are various methods of selling shares to the public.

Public offer: where members of the public subscribe for shares directly to the company.

Offer for sale: an offer to members of the public to apply for shares based on information in a prospectus

Placing: a method of raising share capital where shares are offered in a small number of large 'blocks', to

persons or institutions who have previously agreed to purchase the shares at a predetermined price.

In order to encourage the public to buy shares in a public company, it may issue a prospectus, or in the

case of a company listed on the Stock Exchange, listing particulars. Listing particulars are subject to

rules set down by the UK Listing Authority (part of the Financial Services Authority).

4.3 Private company allotment of shares

The allotment of shares in a private company is more straightforward. The rule to remember is that

private companies cannot sell shares to the public. An application must be made to the directors directly.

After that shares are allotted and issued, and a return of allotment made to the Registrar, as for a public

company.

4.3.1 Directors' powers to allot shares 6/10

Directors of private companies with one class of share have the authority to allot shares unless

restricted by the articles. Directors of public companies or private companies with more than one class

of share may not allot shares (except to subscribers to the memorandum and to employees' share

schemes) without authority from the members. Any director who allots shares without authority

commits an offence under s549 Companies Act 2006 and may be fined. However, the allotment remains

valid.

4.4 Pre-emption rights: s 561

If the directors propose to allot 'equity securities' wholly for cash, there is a general requirement to offer

these shares to holders of similar shares in proportion to their holdings.

Pre-emption rights are the rights of existing ordinary shareholders to be offered new shares issued by the

company pro rata to their existing holding of that class of shares.

If a company proposes to allot ordinary shares wholly for cash, it has a statutory obligation to offer those

shares first to holders of similar shares in proportion to their holdings and on the same or more

favourable terms as the main allotment. This is known as a rights issue.

4.5 Rights issues

A rights issue is a right given to a shareholder to subscribe for further shares in the company, usually pro

rata to their existing holding in the company's shares.

A rights issue must be made in writing (hard copy or electronic) in the same manner as a notice of a

general meeting is sent to members. It must specify a period of not less than 21 days during which the

offer may be accepted but may not be withdrawn. If not accepted or renounced in favour of another

person within that period the offer is deemed to be declined.

Equity securities which have been offered to members in this way but are not accepted may then be

allotted on the same (or less favourable) terms to non-members.

If equity securities are allotted in breach of these rules the members to whom the offer should have been

made may within the ensuing two years recover compensation for their loss from those in default. The

allotment will generally be valid.

4.5.1 Exclusion of pre-emption rights: s567

A private company may by its articles permanently exclude these rules so that there is no statutory right

of first refusal.

4.5.2 Disapplication of pre-emption rights: s 570

Any company may, by special resolution resolve that the statutory right of first refusal shall not apply: s

570. Such a resolution to 'disapply' the right may either:

(a) Be combined with the grant to directors of authority to allot shares, or

(b) Simply permit an offer of shares to be made for cash to a non-member (without first offering the

shares to members) on a particular occasion

In case (b) the directors, in inviting members to 'disapply' the right of first refusal, must issue a circular.

This sets out their reasons, the price at which the shares are to be offered direct to a non-member and

their justification of that price.

4.6 Bonus issues

A bonus issue is the capitalisation of the reserves of a company by the issue of additional shares to

existing shareholders, in proportion to their holdings. Such shares are normally fully paid-up with no cash

called for from the shareholders.

A bonus issue is more correctly but less often called a 'capitalisation issue' (also called a 'scrip' issue).

The articles of a company usually give it power to apply its reserves to paying up unissued shares wholly

or in part and then to allot these shares as a bonus issue to members.

CHAPTER ROUNDUP

• A member of a company is a person who has agreed to become a member, and whose name has been

entered in the register of members. This may occur by: subscription to the memorandum; applying for

shares; the presentation to the company of a transfer of shares to the prospective member; applying as

personal representative of a deceased member or a trustee of a bankrupt.

• There are eight ways in which a member ceases to be so.

• Public and private companies must have a minimum of one member (s 7). There is no maximum

number.

• A share is a transferable form of property, carrying rights and obligations, by which the interest of a

member of a company limited by shares is measured.

• The term 'capital' is used in several senses in company legislation, to mean issued, allotted or called up

share capital or loan capital.

• If the constitution of a company states no differences between shares, it is assumed that they are all

ordinary shares with parallel rights and obligations. There may, however, be other types, notably

preference shares and redeemable shares.

• The most common right of preference shareholders is a prior right to receive a fixed dividend. This right is

not a right to compel payment of a dividend, but it is cumulative unless otherwise stated. Usually,

preference shareholders cannot participate in a dividend over and above their fixed dividend and cease to

be entitled to arrears of undeclared dividends when the company goes into liquidation.

• The holders of issued shares have vested rights which can only be varied by using a strict procedure. The

standard procedure is by special resolution passed by at least three quarters of the votes cast at a

separate class meeting or by written consent.

• It is not a variation of class rights to issue shares to new members, to subdivide shares of another class,

to return capital to preference shareholders, or to create a new class of preference shareholders.

• A dissenting minority holding 15% or more of the issued shares may apply to the court within 21 days of

class consent to have the variation cancelled as 'unfairly prejudicial'.

• Directors exercise the delegated power to allot shares, either by virtue of the articles or a resolution in

general meeting.

• If the directors propose to allot 'equity securities' wholly for cash, there is a general requirement to offer

these shares to holders of similar shares in proportion to their holdings.

QUICK QUIZ

1 If a company fails to pay preference shareholders their dividend, they can bring a court action to compel

the company to pay it.

True

False

2 Which two of the following are implied rights of preference shareholders?

A The right to receive a dividend is cumulative.

B If the company goes into liquidation, preference shareholders are entitled to claim all arrears of

dividend from the liquidator.

C As well as rights to their preference dividends, preference shareholders can share equally in

dividends payable to ordinary shareholders.

D Preference shareholders have equal voting rights to ordinary shareholders.

3 If a company issues new ordinary shares for cash, the general rule is that:

A The shares must first be offered to existing members in the case of a public but not a private

company.

B The shares must first be offered to existing members whether the company is public or private.

C The shares must first be offered to existing members in the case of a private but not a public

company.

D The shares need not be issued to existing members.

4 Fill in the blanks in the statements below.

A ……………….. issue is an allotment of additional shares to existing members in exchange for

consideration payable by the members.

A ……………….. issue is an allotment of additional shares to existing members where the consideration

is paid by using the company's reserves.

5 Fill in the blanks in the statements below.

If there has been a variation of class rights, a minority of holders of shares of the class (who have not

consented or voted in favour of the variation) may apply to the court to have the variation cancelled. The

objectors must hold not less than ……………….. of the issued shares of that class, and apply to the

court within ……………….. days of the giving of consent by that class.

6 What is the minimum number of members that a plc must have?

A One

B Two

C Three

D Four

7 Match the definitions to the correct type of capital

(a) Issued share capital

(b) Called up share capital

(c) Paid up share capital

(i) The amount which the company has required shareholders to pay on shares issued.

(ii) The type, class, number and amount of the shares held by the shareholders.

(iii) The amount which shareholders have actually paid on the shares issued and called up.

ANSWERS TO QUICK QUIZ

1 False. The company may decide not to pay any dividend, or may be unable to because it does not have any

distributable profits. What the preference shareholders have is a right to receive their dividends before

other dividends are paid or declared.

2 A and D are implied rights; the others have to be stated explicitly.

3 B. The shares must be first offered to existing members whether the company is public or private.

4 A rights issue is an allotment of additional shares to existing members in exchange for consideration

payable by the members.

A bonus issue is an allotment of additional shares to existing members where the consideration is

effectively paid by using the company's reserves.

5 If there has been a variation of class rights, a minority of holders of shares of the class (who have not

consented or voted in favour of the variation) may apply to the court to have the variation cancelled. The

objectors must hold not less than 15% of the issued shares of that class, and apply to the court within 21

days of the giving of consent by that class.

6 A. All companies must have a minimum of one member (s 7).

7 (a) (ii)

(b) (i)

(c) (iii)