1. 1 Share Capital

2. 2 In general terms, a company's capital includes all its business assets, including premises, equipment, stock in trade and goodwill. In company law, capital is used in a specialized sense to mean capital raised through the issue of shares or through loans made to the company. In company law, capital is used in a specialized sense to mean capital raised through the issue of shares or through loans made to the company.

3. 3 A share is the unit of measure for determining a member ’ s interest in the company. A share is the unit of measure for determining a member ’ s interest in the company. Buyers of shares from a company become company members and the money collected becomes share capital of the company. Buyers of shares from a company become company members and the money collected becomes share capital of the company.

4. 4 nominal value for each share – an amount which members must contribute for getting the share nominal value for each share – an amount which members must contribute for getting the share A member is a shareholder. A member is a shareholder. A member is NOT a creditor. A member is NOT a creditor.

5. 5 Categories of share capital Issued capital: this refers to the number of shares issued to members and represents some guarantee of progress for the company's creditors. The sum equals to the nominal value f all the hares which the company has actually issued. Issued capital: this refers to the number of shares issued to members and represents some guarantee of progress for the company's creditors. The sum equals to the nominal value f all the hares which the company has actually issued. Paid-up capital: the amount paid by share holders. This should be the same as the called up capital unless a shareholder has hailed to pay what is due. The amount of paid up capital is a good indicator of the company's financial health. Paid-up capital: the amount paid by share holders. This should be the same as the called up capital unless a shareholder has hailed to pay what is due. The amount of paid up capital is a good indicator of the company's financial health.

6. 6 Uncalled capital: The difference between the called up capital and the nominal value of the shares. Uncalled capital: The difference between the called up capital and the nominal value of the shares. Reserved capital: This is created by the company passing a special resolution which remove issued capital from the directors' control in order to provide a fund out of which creditors may be paid in the event of a winding up. Reserved capital: This is created by the company passing a special resolution which remove issued capital from the directors' control in order to provide a fund out of which creditors may be paid in the event of a winding up.

7. 7 Typical Rights of Shareholders right to control company through voting at meetings right to control company through voting at meetings right to participate in distribution of profits right to participate in distribution of profits right to participate in surplus assets in a winding up. right to participate in surplus assets in a winding up.

8. 8 Types of Shares Preference Shares Preference Shares Give preferential right to a dividend of fixed amount or fixed percentage per share - this dividend is paid before anything is paid to ordinary shareholders. Give preferential right to a dividend of fixed amount or fixed percentage per share - this dividend is paid before anything is paid to ordinary shareholders. Right to dividend is normally cumulative. Right to dividend is normally cumulative.

9. 9 usually give a preferential right to repayment of capital on a winding up. usually give a preferential right to repayment of capital on a winding up. normally have restrictions placed on shareholders ’ power to vote at general meetings. normally have restrictions placed on shareholders ’ power to vote at general meetings.

10. 10 In practice, preference shareholders may vote if dividends are in arrears or on a resolution to reduce capital or to wind up the company or that the resolution is likely to affect their class rights. In practice, preference shareholders may vote if dividends are in arrears or on a resolution to reduce capital or to wind up the company or that the resolution is likely to affect their class rights.

11. 11 Ordinary Shares (or equity shares) Ordinary Shares (or equity shares) Dividend depends on company profits and there is no automatic right to a dividend. Ordinary shareholders are entitled to be paid a dividend only after preference dividends have been paid. Dividend depends on company profits and there is no automatic right to a dividend. Ordinary shareholders are entitled to be paid a dividend only after preference dividends have been paid.

12. 12 (c) Redeemable shares (c) Redeemable shares Sections 49 and 49A allow a company, if authorized by its articles, to issue both ordinary and preference shares which are redeemable. Sections 49 and 49A allow a company, if authorized by its articles, to issue both ordinary and preference shares which are redeemable. These shares are issued on a short-term basis. These shares are issued on a short-term basis. The holder takes them for a specified period of time after which the company buys them back. The holder takes them for a specified period of time after which the company buys them back.

13. 13 The redemption must be financed (a) out of distributable profits, or (a) out of distributable profits, or (b) out of the proceeds of a new issue of shares made for the purposes of the redemption.

14. 14 Practical use: Practical use: a useful means of raising capital for a new small business. a useful means of raising capital for a new small business. may also be used as employee incentive schemes offering shares to employees. may also be used as employee incentive schemes offering shares to employees.

15. 15 Variation of class rights Shares may be issued with differing rights. Shares may be issued with differing rights. A group of shares with the same rights constitutes a class. A group of shares with the same rights constitutes a class. The terms of issue of a class of shares may specify how these rights may be varied. The terms of issue of a class of shares may specify how these rights may be varied.

16. 16 If there is no specific provision for variation, the method of variation depends on where the terms of issue are laid down. If there is no specific provision for variation, the method of variation depends on where the terms of issue are laid down. if the terms of issue are specified in the memorandum, the rights may be varied if all members of the company agree (s. 63A(3)); if the terms of issue are specified in the memorandum, the rights may be varied if all members of the company agree (s. 63A(3)); if the terms of issue are specified in the articles or in a contract, consent of 75% in nominal value of the issued shares of the class or by special resolution passed at a separate class meeting. (s. 63A(1)) if the terms of issue are specified in the articles or in a contract, consent of 75% in nominal value of the issued shares of the class or by special resolution passed at a separate class meeting. (s. 63A(1))

17. 17 if the terms of issue are specified in the memorandum, the rights may be varied if all members of the company agree (s. 63A(3)); if the terms of issue are specified in the memorandum, the rights may be varied if all members of the company agree (s. 63A(3)); if the terms of issue are specified in the articles or in a contract, consent of 75% in nominal value of the issued shares of the class or by special resolution passed at a separate class meeting. (s. 63A(1)) if the terms of issue are specified in the articles or in a contract, consent of 75% in nominal value of the issued shares of the class or by special resolution passed at a separate class meeting. (s. 63A(1))

18. 18 Not all variations to a company's structure will constitute a variation of class rights. Not all variations to a company's structure will constitute a variation of class rights. Only if the rights of the class of shareholders are altered in substance, not merely in value, is the consent of that class required. Only if the rights of the class of shareholders are altered in substance, not merely in value, is the consent of that class required.

19. 19 Protection given to a minority of shareholders Where a variation of class rights is approved by the consent of a proportion of shareholders or the passing of a resolution at a class meeting, the holders of not less than 10% in nominal value of the issued shares of the class may apply to the court to have the variation cancelled. (s.64 of CO) Where a variation of class rights is approved by the consent of a proportion of shareholders or the passing of a resolution at a class meeting, the holders of not less than 10% in nominal value of the issued shares of the class may apply to the court to have the variation cancelled. (s.64 of CO)

20. 20 If the affairs of the company are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally, a petition may be presented to the court by an individual member under s. 168A. If the affairs of the company are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally, a petition may be presented to the court by an individual member under s. 168A.

21. 21 Majority rule and the statutory protection of minority shareholders General Principle General Principle All the powers of a company may be exercised by a majority decision of: All the powers of a company may be exercised by a majority decision of: shareholders in general meeting; or shareholders in general meeting; or the board of directors. the board of directors.

22. 22 Courts will generally not interfere: Foss v Harbottle (1843) Courts will generally not interfere: Foss v Harbottle (1843)

23. 23 Statutory protection of the minority: Against abuse of majority power- A special resolution is required for important matters such as alteration to the company's constitution. Holders of just over 1/4 of voting rights could block passage of such resolution. A special resolution is required for important matters such as alteration to the company's constitution. Holders of just over 1/4 of voting rights could block passage of such resolution. Sanction of court is required for decisions directly affecting creditors of the company. Sanction of court is required for decisions directly affecting creditors of the company. Dissentient members have right to apply for court order to cancel a resolution for alteration of objects, variation of class rights or the redemption of capital. Dissentient members have right to apply for court order to cancel a resolution for alteration of objects, variation of class rights or the redemption of capital.

24. 24 Holders of 5% of paid-up capital may requisition the directors to call a meeting. Holders of 5% of paid-up capital may requisition the directors to call a meeting. Holders of 5% of voting rights or 100 members, each with $2000 paid up, may requisition for a resolution to be considered by the company's general meeting. Holders of 5% of voting rights or 100 members, each with $2000 paid up, may requisition for a resolution to be considered by the company's general meeting. 100 members or holders of 10% issued shares may apply to the Financial Secretary to appoint an inspector to investigate the company. 100 members or holders of 10% issued shares may apply to the Financial Secretary to appoint an inspector to investigate the company.

25. 25 Right of minority to be bought out in a successful take- over offer. Right of minority to be bought out in a successful take- over offer. Court may grant relief to members who are unfairly prejudiced by the manner the affairs of the company are being conducted. Court may grant relief to members who are unfairly prejudiced by the manner the affairs of the company are being conducted. Minority shareholders have right to be bought out in a successful general offer to buy back shares. Minority shareholders have right to be bought out in a successful general offer to buy back shares. A member may petition to court for the winding up of the company. A member may petition to court for the winding up of the company.

26. 26 Judicial protection of the minority As exceptions to the rule in Foss v Harbottle: As exceptions to the rule in Foss v Harbottle: to enforce some individual right of his own, e.g. a dividend is declared but not paid; to enforce some individual right of his own, e.g. a dividend is declared but not paid; where a right has been infringed which affects all or a number of shareholders in a similar way; where a right has been infringed which affects all or a number of shareholders in a similar way;

27. 27 where the alleged wrongdoers are in control of the company so that it is impossible for the company to bring an action in its own name (a fraud on the minority - abuse of power by those in control of a company). where the alleged wrongdoers are in control of the company so that it is impossible for the company to bring an action in its own name (a fraud on the minority - abuse of power by those in control of a company).