(b) Share Capital of a Company

7/29/2019 (b) Share Capital of a Company

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SHARE CAPITAL OF

A COMPANY

GHULAM MURTAZA KORAI

IoBM


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DEFINITION OF SHARE

A share in the share of the company,it includes stocks. It is a moveableproperty in the manner provided bythe articles of the company.

Share Capital: Share capital means aparticular amount of money with

which a business is started. It maybe:


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SHARE CAPITAL

Nominal or Authorized Capital: Themaximum amount of capital which acompany can issue according to itsmemorandum.

Issued Capital: The part of the amount ofauthorized capital which is offered bydirectors or promoters for subscription.

Subscribed Capital: The part of amount ofissued capital which is taken by the people.

Paid up Capital: The part of subscribedcapital against which money has beenreceived.


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CLASSES OF SHARES

Ordinary Shares: These carry right inprofits, if available, the right to sharein surplus on winding up, and thevoting rights.

Preference Shares: These carry theright to a fixed dividend which is

payable before any dividend on theordinary shares, but no voting rights.


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TYPES OF PREFERENCESHARES

Participatory Preference Shares:Preference which are entitled toparticipate in surplus profits. Similarly in

winding up of a company, after payingback both the preference and ordinaryshareholders, the preferenceshareholders are entitled to share in thedistribution of surplus, in any, suchpreference shareholder are known asparticipatory preference shares.


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Convertible Preference Shares:Preference shares which are convertibleinto any other shares of the company

after a specified period of time.

Redeemable Preference Shares:Preference shares which are issued for a

definite time period after the expiry ofwhich the preference shares will beredeemed in cash.


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Irredeemable preference Shares: Ifpreference shares are not redeemableafter a specific period of time are called

irredeemable preference shares.

Zero Dividend Preference Shares:Preference Shares which receive no

dividend throughout their lives andinstead a fixed known amount is paid atmaturity.


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Issue of Shares within andoutside Pakistan

Only fully paid up shares shall beissued i.e. a company shall not issuepartly paid up shares-section 91

Issue of Security outside Pakistan: Acompany shall not issue any securityoutside Pakistan except with the prior

approval of SECP.


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Definition of Security

Security means any share, scrip,debenture, participation termcertificate, modarba certificate,musharika certificate, term financecertificate, bond, pre-organizationcertificate or such other instrument

as the Federal Government, bynotification in the official Gazette,specify for the purpose.


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ALLOTMENT OF SHARES

Definition: Allotment of shares meansdivision of entire share capital intodefinite shares each of a particularvalue and also of different classes andan assignment of such sharesindividually or collectively to different

persons.


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APPLICATION FOR ALLOTMENT OFSHARES

Application must be made: i) on theform prescribed by the commission;and ii) for such amount as prescribedby the commission.

The amount payable shall be the fullnominal amount of the shares applied

for. Application shall be irrevocable.


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RESTRICTIONS AS TO ALLOTMENT

No allotment is made for shares offered topublic for subscription: I) If the amount ofthe minimum subscription stated in the

Prospectus has not been subscribed andpaid in cash to the company. II) If thenominal value of each share is not fullypaid. III) If the share money is not kept in

a separate bank account till certificate ofcommencement of business has not beenobtained.


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EFFECTS OF IRREGULARALLOTMENT

Any allotment made contrary to theprovisions of Companies Ordinance,1984 or an allotment shall beconsidered irregular if full amount ofshares is not received with theapplication whether it is first

allotment or subsequent allotment.The allotment shall be voidable at theinstance of the applicant within:


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30 days after the holding of statutorymeeting; or

30 days after the date of allotment where

the statutory meeting is not required orallotment is made after statutory meeting.

It shall be noted that it is the applicant whohas the right to avoid the allotment. The

company cannot take the benefit of its ownirregularities and cannot avoid theallotment after it is once made.


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Any officer knowingly involved shallbe liable to compensate the companyand the allottee for any loss, damageor costs that the company or theallottee may have sustained thereby.Proceeding against any officer in this

respect can be initiated up to twoyears from the date of allotment.


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REPAYMENT OF MONEY RECEIVEDFOR SHARES NOT ALLOTTED

The company within 10 days from sharesubscription date shall decide as to whomshares are to be allotted.

The amount to unsuccessful applicants shallbe refunded within 10 days from thedecision.

If the refund is not made within 15 days,

the directors shall repay the amount alongwith surcharge of 1.5% for a month. Thefine up to Rs.5,000 and a further fine ofRs.100 a day in case of continuing offense.


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LIMITATION OF TIME FOR ISSUEOF SHARE CERTIFICATES

A company shall issue sharecertificates within 90 days from thedate of allotment.

In case of default a fine notexceeding Rs.100 for a day duringwhich the default continues.

Duplicate certificate shall be issuedwithin 45 days from the date ofapplication.


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PROVISIONS REGARDINGTRANSFER OF SHARES

The mode of transfer of shares is usuallyprovided by the articles;

An application for the transfer of shares

may be made either by the transferor or bythe transferee.

Transfer shall be made on properlystamped and executed instrument.

The company shall complete the transferwithin 45 days of application and registerthe name of transferee in its register ofmembers.


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TRANSFER OF SHARES TOSUCCESSOR-IN-INTEREST

The transfer of shares or debentures fromdeceased member or holder of lawfulnominee successor in interest shall bemade on application by such nomineesuccessor duly supported by documentevidencing nomination or lawful award ofthe relevant property to such nominee orsuccessor.

Only the spouse, father, mother, brother,sister and son or daughter (real, step oradopted) can be nominated.


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TRANSFER OF SHARE BY NOMINEEOR LEGAL REPRESENTATIVE

Transfer of the share by nominee or legalrepresentative shall be as valid as if he hadbeen a member at the time of execution of

the transfer of the instrument of transfer. TRANSMISSION OF SHARES:

Transmission is the passing of title orproperty in shares by operation of law on

the happening of such events as death,insolvency or lunacy of shareholders.


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COMMISSION ON SALE OF SHARESOR DEBENTURES

A company is authorized to pay commission toany person in respect of shares or debenturesincluding underwriter in consideration of hissubscribing or agreeing to subscribe subject tothe following:

If the payment of such commission isauthorized by the articles;

Commission does not exceed the rate fixed bythe commission;

The amount and rate of the commission isdisclosed in Prospectus or SILP; and


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COMMISSION ON SALE OF SHARESOR DEBENTURES

The number shares on whichcommission is payable should bedisclosed in the Prospectus os SILP.


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ISSUE OF SHARES AT DISCOUNT

A company is authorized to issue shares atdiscount subject to the following:

Discount must be authorized by resolutionpassed in general meeting;

It must be sanctioned by the commission;

The resolution must specify the rate ofdiscount;

At least business has completed one year;

It is issued within 60 days from the date ofsanction of the commission

Prospectus and balance sheet must include theparticulars of discount allowed.


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ISSUE OF SHARES AT PREMIUM

Where shares are issued at premium anamount equal to premium shall betransferred to an account called SharePremium account.

The Share Premium Account may beutilized by the company in: I) writing offinitial expenses; or II) writing off thecommission paid or discount allowed onissue of shares or debentures; or III)

payment of premium on redemption ofredeemable preference shares ordebentures; IV) issue of bonus shares.


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FURTHER ISSUE OF CAPITAL

Where the directors decide to increase thecapital of the company by issue of furthershares, such shares shall be first offered tothe existing shareholders. Such issue is

called right issue. However a publiccompany by passing special resolution canfurther raise the capital and after theapproval of the Federal Govt. without theright issue. The company can even offer a

certain percentage of its shares to itsemployees under the Employees StockOption Scheme.


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REDEEMPTION OF PREFERENCESHARES

Company may redeem fully paidpreference shares:

Out of the profit of the company

available for dividend. Out of proceeds of fresh issue of

shares made for the purpose ofredemption; or

Sale proceeds of any property of thecompany.


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ALTERATION OF SHARE CAPITAL

A company limited by shares, if authorized byits Articles and approved in general meeting,may alter the contents of its memorandum soas to: I) Increase its capital II) Consolidate and

divide its share capital into shares of a largeramount than its existing shares e.g. Rs.5million authorized capital divided into 500,000shares of Rs.10 each may be altered anddivided into 100,000 shares of Rs.50 each. III)

The company shall file a notice to the Registrarwithin 15 days of the consolidation of shares.IV) sub divide its shares into smaller amount.


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POWER OF A COMPANY TOPURCHASE ITS OWN SHARES

This provision empowers a listedcompany to purchase its shares; thesalient features are as under: a)

Special resolution is requiredspecifying the maximum number ofthe shares, maximum price and thetime frame within which the purchase

is to be made; b) The company shallhave the prescribed debt-equity ratioand current ratio;


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POWER OF A COMPANY TOPURCHASE ITS OWN SHARES

Notice of general meeting shallaccompany an explanatory statementcontaining all the material facts

including: I) justification for thepurchase of own shares; II) sourcesof finance; III) effect on the financial

position of the company; IV)declaration of solvency


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REDUCTION OF SHARE CAPITAL

A company limited by shares may reduceits paid up share capital in the followingmanner: I) cancel any paid up capital which

is lost or unrepresented by availableassets; or II) pay off any paid up capitalwhich is in excess of the needs of thecompany

For the reduction of paid up capital thefollowing are required:


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REDUCTION OF SHARE CAPITAL

The company is authorized by itsArticles to reduce its paid up capital.

Special resolution for reducing sharecapital is required; and

Confirmation by the court on petitionis required.


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CONFIRMATION BY THE COURT

If reduction of capital involves payment toshareholders then the creditors may objectto the proposed reduction and for this

purpose, the court shall settle a list ofcreditors so entitled to object containingnames, nature and the amounts of theirclaim. The company shall:

Obtain consent from its creditors; or Discharge the liability of the objecting

creditors.


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CONFIRMATION BY THE COURT

However, if the repayment of the amountdue to a creditor is secured, the court maydispense with the consent of such creditorand may order reduction on such terms andconditions as it thinks fit.

The court order confirming the reduction ofcapital along with the minutes of meetingrelating to reduction as approved by the

court shall be filed with the registrar whoshall register it and the resolution reductionthe capital will take effect and not before.


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PUBLICATION OF REASONS FORREDUCTION

The court may require the companyto publish in the manner specified bythe court the reasons for reduction or

such other information in regardthereto as the court may thinkexpedient in order to inform the

public about the causes which led toreduction.

Documents

(b) Share Capital of a Company