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Shares Capital Notes

Company Law II (Multimedia University)

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Introduction
 What is a share?
 S.2(1) of the Companies Act 2016 (hereinafter referred to as ‘CA’) issued
share capital of a corporation and includes stock except where a distinction between
stock and shares is expressed or implied.
 Borland’s Trustee v Steel Bros & Co Ltd. It is the interest of a person in the
company, the interest being composed of rights and obligations which are defined
by the Companies Act and by the memorandum and articles of association of the
company. A share is the interest of the shareholder in the company measured by a
sum of money, for the purpose of 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. A share is an interest measured by a sum of money and made up of
various rights contained in the contract, including the right to a sum of money of a
more or less amount.
 Prudential Assurance Co Ltd v Newman Industries Ltd (No.2). P the
shareholder cannot recover damages merely because the company in which he has
an interest has suffered damage because such a ‘loss’ is merely a reflection of the
loss suffered by the company. The shareholder does not suffer any personal loss.
His only ‘loss’ is through the company, in the diminution in the value of the net
assets of the company, in which he has (say) a 3 per cent, shareholding. The
plaintiff’s shares are merely a right of participation in the company on the terms of
the articles of association.
 A share may represent both of the rights and liabilities of a shareholder.
 Nature of shares
 Section 70 of the CA, states that a share or other interest of a member in a
company is personal property and transferable.
 Section 2 of the SOGA 1957 provides the definition of a movable property.
 A choice in action
 Malpac Holdings Bhd v Malpac Capital SB, the legal nature of a share in a
company is frequently described as a ‘bundle of rights’ and if the bundle is held in
fiduciary capacity by the registered shareholder it might be thought that each
constituent part of the bundle must also be held in the same way ...’
 Terminologies
 Registered capital
 The maximum amount of capital which a company is authorised to raise by
issuing its shares.
 Issued capital
 Part of the authorised capital of a company that has been issued to its
shareholders.
 Paid-up capital
 Part of the issued capital that has been paid up by the shareholders.
 Unpaid capital

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 Amount unpaid on shares issued which could be called upon at a specific time.
 Section 82 of the CA states that the directors may make calls upon the
shareholders in respect of any money unpaid on the shares of the
shareholders.
 Section 83 of the CA states that if a shareholder fails to pay any call or
installment of a call within the stipulated time, the directors may serve a notice
on the shareholder requiring payment of the amount unpaid together with any
interest or compensation which may have accrued.
 Section 111 of the CA provides on the lien on shares.
 Called-up capital
 Portion of the shares which the shareholders are called upon to pay.
 Uncalled capital
 The part of the capital which can be called only in the event of its winding up.

Issuance of Shares
 Koffyfontein Mines Ltd v Mosely, there is an express and clear provision that any new
shares must be issued on such terms as the company may from time to time by the
resolution of a general meeting. Held that the new shares cannot be issued without a
resolution of a general meeting.
 National Westminster Bank plc & Anor v IRC, in this case the shares in Business
Expansion Scheme were not to be treated as issued until they were entered in the
company’s share register. The scheme was ineffective being a scheme to avoid Income
Tax by financial manipulation. Held that the shares are issued when an application has
been followed by allotment and notification and completed by entry on the register. Once
the shares have been issued, the shareholder is entitled to a share certificate. The share
certificate declares to all the world that the person who is named in it is the registered
holder of certain shares in the company and that the shares are paid up to the extent
therein mentioned.
 Section 97 of the CA states that a company shall not be required to issue a share
certificate unless an application by a shareholder for a certificate relating to the
shareholder’s shares in a company has been received or otherwise provided by its
constitution.
 Section 101 of the CA states that in the absence of evidence to the contrary, the entry
of the name of a person in the register of members as shareholder is prima facie
evidence that legal title to the share is vested in that person.
 Raja Kamarulzaman Shah bin Raja Aziddin v Zaman Indah SB, the Plaintiff (P)
applied for shares in the company. It was agreed on incorporation that the shares would
be issued as and when the need arose. The directors made a call for payment in respect
of shares to be issued to P. P having paid the respective sums in advance, demanded
the issue of share certificates within 48 hours. The share certificates were not issued. P
applied for an order that the said shares to be entered into the register of shareholders &
that D be restrained from convening an EGM until the shares have been so registered.
Held that the legal effect of an allotment was an appropriation of shares, though not

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necessarily specific shares, to a person. The payment of money for the shares did not
entitle

P to have the shares issued immediately, nor had they the right to be entered in the register of
members in respect of the shares paid for.
 Power to Allot Shares
 Section 75(1) of the CA states that unless approved by way of resolution by
the company, the directors of the company shall not allot shares, grant rights, convert
any security into shares.
 Section 76(1) of the CA states that such approval may be made
unconditionally or subject to certain conditions
 Section 76(3) of the CA provides on the period of approval.
 Section 76(4) of the CA provides on that the approval may be revoked or
varied at any time by company’s resolution.
 Section 75(2) of the CA states that the approval may be exempted if fall under
this section.
 Non-compliance of Section 75 of the CA
 Section 75(4) of the CA states that the share issued become void.
 Section 75(5) of the CA states that the directors shall take all reasonable
steps to prevent any contravention of Section 75. Failure to do so amounting to an
offence. Hence, liable to compensate the company and the shareholder for any loss
or damage.
 Section 75(6) of the CA states that the limitation period is 3 years from the date
of issue.
 No Par Value
 Under CA 1965, all shares issued with par value
 After CA 2016, all shares issued without par value
 Section 74 of the CA states that all shares issued shall have no par or nominal
value.
 Company not required to state the nominal value of the shares anymore
 Government has abolish par value because it does not show the ability of the
company to pay the debt.
 Upon incorporation, the company is not required to state the authorized share
capital.
 CLRC = The authorized capital does not reflect the actual worth of the
company. It is just figures/numbers and shares may have been issued / not. Thus,
not a true indicator on the company’s ability to pay its debt.
 Consequently, shares issued at a discount, at a premium and share premium
account have become redundant.
 Retrospective effect.
 Share Premium Account
 When issued higher than the par value, there will be a difference that is the
premium and the difference will be put into the share premium account.
 But now no more par value so what happens to the balance in share premium
account?
 Section 618(3) of the CA states that the company can use the balance to

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provide for the premium payable on redemption of debentures or redeemable

preference shares issued before the commencement of Section 74.
 Section 618(5) of the CA states that if the company is an insurance company,
then can use the balance immediately or transfer.

 Section 618(2) of the CA, after 24 months, if the company cannot use balance
in the account, then balance will go to share capital account of the company.
 Henry Head & Co Ltd v Ropper Holdings Ltd, the nominal value of the
shares issued was 1.75 million pounds. A valuation obtained at the time the
transaction was entered into showed that the shares acquired had a value of
6.75 million pounds. The cost of the assets acquired was recorded at the 6.75
million pounds figure. Held that the difference of 5.00 million pounds had to be
carried to share premium account.
 Par value does not give any right or protection to the shareholder instead it’s
the right attached to the shares that gives the enjoyment of rights.

Pre-emptive Rights to New Shares

 Section 85(1) of the CA states that the issue of new shares that rank equally should
first be offered to the holders of existing shares.
 Section 85(2) of the CA states that the notice offering those new shares shall specify
the number of shares offered and the time frame to accept the offer.
 Section 85(3) of the CA states that if the offer is not accepted within the time frame,
directors may dispose those shares as they think most beneficial to the company.
 Section 85(4) of the CA states that the company constitution may provide otherwise.

Validation of Improper Allotment of Shares

 Section 108 of the CA states the application can be made by company, shareholder,
mortgagee, creditor of company.
 If shares never had any lawful existence, then the question of validation does not arise.
 Kelapa Sawit (Teluk Anson) SB v Yeoh Kim Leng & Ors, SC refuse to make a
validation order under Section 63 of the CA 1965 because court found that the issue of
shares was done without proper authorisation and was therefore not an act of the
company. SC further stated that if an act attributed to the company is not in fact in law an
act of the company, it does not bind the company whereas an act of the company which
is irregular offers room for its regularisation or validation by application of the just and
equitable dispose embodied in Section 63.

Saw Seng Kee v Nadzri & Ng Securities SB, P bought 85 lots of shares in a company known
as Pahang Investment and P did so through 2 remiser namely Ng and Saw. Both of them were
employed by D company which was the broker so the P paid for the shares in the form of
cheques totaling about 95,000. Sometime later, trading in the company was suspended by the
KL Stock Exchange and the company was delisted. The suspension was due to criminal
investigation being launched into the activities of the company because there were 32 million
units of forged shares had been issued and the certificate of shares supplied to P by the broker
were forgeries. P commences an action against Ng and Saw and also the broker as the shares
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were forgeries. Held that all the share certificate given to P were not signed by any director or
secretary of company, the share certificate were not printed on securities paper, the old
name of company was still printed on share certificate while the company name had already
been changed when P bought its share. P’s claim was allowed.
 Re Swan Brewery Co Ltd (No.2), few years after shares had been allotted and
dividends on those shares had been distributed, it was found that the shares were
improperly allotted. However, the court validated the allotment on the basis that it was
just and equitable to do so. In allowing the application to validate the issue, the court
stated that there are few factors that can be taken into consideration in exercising its
discretion. First, interest of the large number of people who would suffer if the issue of
shares is not validated. Second, the lack of notice of invalidity at any point of time. Third,
the shareholders are bona fide. Court allowed the application to validate the improperly
allotted shares.

Classes of Shares Classes of Shares

 Refer to category of shares.
 Difference classes of shares means differences in rights and liabilities.
 General rule is that all the shares are in the same class if the rights attached to the
shares are identical in all respects [Section 89(1) of the CA]
 Section 69 of the CA states that a company is allowed to issue different classes of
shares.
 Ordinary shares
 Section 2 of the CA provides on the equity share
 Section 71(1) of the CA provides on the rights of holder of an ordinary share
 Preference shares (Allowed by Section 72 of the CA)
 Section 2(1) of the CA provides ‘a share … which does not entitle the holder
to the right to vote on a resolution or to any right to participate beyond a
specified amount in any distribution whether by way of dividend, or on
redemption, in a winding up, or otherwise
 Section 90(2) of the CA states that the Constitution set of right of preference
shares.
 In the event company wound up, holder of preference share gets priority and be
entitled to benefits first as compared to holder of ordinary share.
 No voting rights
 Section 90 of the CA states that different classes of shares and their voting rights to be
stated in the constitution

Class Rights
 Section 89(1) of the CA states that shares are in the same class if the rights attached to
the shares are identical in all respects.
 Section 89(2) of the CA allows new shares in the same class enjoy a different right to
dividends in the first 12 months after allotment.
 Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Printing Ltd.
Although the claimant’s rights were not rights annexed to particular shares in the way

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that, for instance, preference dividend rights would be clearly annexed to

preference shares, they were nevertheless conferred on the claimant in its
capacity as a member of the defendant company, though were not attached to
any particular share or shares.

 Variation of class rights - common law
 Rights attached to a specific class of shares are being modified, altered or
changed
 When does variation of class rights occur?
 Test: Whether after the amendment of the articles/ or passing of resolution,
shareholders in question have the rights they had before the amendment or
passing of resolution.
 If still have same rights, no variation of class rights.
 Greenhalgh case The share capital of a company was divided into two
classes of ordinary shares. There are 10 cents and 2 cents that ranked equally for
all purposes. Greenhalgh held a buck of the 2 cents shares and controlled 40% of
the votes. There were 2 resolutions passed. The first resolution was to subdivide the
10 cents shares into five 2 cents ordinary shares. Each of 2 cent ordinary shares
ranked equally with the original 2 cent shares. The second resolution was passed to
increase the capital of the company by issuing further ordinary shares. Greenhalgh
argued that as a result of those 2 resolutions, his voting power was reduced and
therefore there was variation of rights. Held that the Court of Appeal disagree. Court
said that there was no variation of right. As a matter of law, it is unable to hold that
these rights are varied as a result of the resolution. His rights remain what they
always were which is a right to have 1 vote per share equally with other ordinary
share of the company. That particular right has not been taken away. The right to
have 1 vote per share is left undisturbed. There could be a variation of a right if an
application had been made without subdividing the 10 cents shares and 5 votes per
shares were given.
 White v Bristol Aeroplane Co Ltd, the company's AA provided that the class
rights could only be 'affected, modified, varied, dealt with, or abrogated in any
manner' with the approval of an extraordinary resolution passed at a separate
meeting of the members of that class. The company made a bonus issue to ordinary
shareholders, thereby diluting in practical terms the preference shareholders’ voting
power. A preference shareholder challenged the share issue on the basis that the
preferences’ voting rights had been ‘affected’ without their consent. Held that there
was no need to obtain their consent. Their voting rights had not been affected by the
bonus issue as they still had the right to one vote per share held. All that had been
affected was the enjoyment of this legal right, which was ‘not the subject of any
assurance or guarantee under the constitution of the company’.
 Variation of class rights- Malaysia
 Section 91(1) of the CA states that the rights attached may be varied
according to the company’s constitution orif there is no such provision with the
consent of shareholders.
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 Section 339(6)(a) of the CA states that any amendment to the provision for
the variation of rights or insertion of a provision for the variation of class rights is to
be treated variation of those class rights.
 Section 96(1) and Section339(6)(b) of the CA provides on the abrogation of
class rights.
 Section 91(5) of the CA states that the issue of new preference shares
ranking equally with the existing preference shares.
 The Procedures
 Section 91(1)(b) of the CA states on the variation with the consent of the
shareholders of that particular shares.
 Section 91(2) of the CA states that consent is to be obtained in written
consent (more than 75%) or by special resolution.
 Section 92(1) of the CA states that Company to give notice about variation
within 14 days of the variation.
 Section 95(1) of the CA states that Company to lodge the variation to the
Registrar within 30 days of the variation takes effect.
 Section 91(3) of the CA states that a variation takes effect if no application for it
to be disallowed under Section 93.
 Protection against variation
 Constitution
i. Company is bound to follow clauses that provide for the procedure to vary
class rights, if any.
ii. Crumpton v Morrine Hall Pty Ltd, any variation of rights must have
consent of the shareholders in the class since there is no provision of the
constitution in the company on the variation clause. Any modification of
class rights by a company without complying with the variation procedures
as set out in the articles is ineffective.
 Statutory Protection
i. Section 91(3) of the CA states that a variation although properly
consented, will not take effect immediately.
ii. Section 93(1) of the CA states that Shareholders with 10% of the total
voting rights in that particular class may apply to the Court to disallow the
variation.
iii. Section 93(2) of the CA states that application to be made within 30 days
from the date of variation, may be made by representative with written
appointment.
 Section 93(3) of the CA states that the court to disallow or confirm the variation.

Register of Members
 Section 101(1) of the CA states that the name in the register is prima facie evidence of
his legal titles to the shares.
 Ming Yueh Holdings SB v Kong Ming Bank Bhd The fact that a person is a
shareholder does not make him a member of the company.
 Issuance of share certificate is no longer mandatory.
 Section 98 of the CA states that a member may apply for share certificate.
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 Rectification
 Section 103 of the CA states that the person aggrieved can apply for
rectification.
 Allied Properties SB v Semua Holdings SB, the aggrieved party is the
ultimate beneficial owner to the shares to be registered.
 Central Securities (Holdings) Bhd v Haron bin Mohamad Zaid, an
application for rectification cannot be granted where there are serious disputes
regarding title and the issues cannot be properly decided in the summary
proceedings under the section. Delay is a material consideration. In the present
case, the delay is almost 2 years
 Section 50(1) of the CA states that there is a duty to notify Registrar.

Transfer of Shares
 Section 70 of the CA states that a share is transferable in accordance with Section 105.
 Section 105(1) of the CA states that by a duly executed and stamped instrument of
transfer; and shall be lodged with the company.
 Section 98(2) of the CA states that if a share certificate has been issued for the shares
intended to be transferred, the original share certificate shall also be lodged with the
instrument of transfer.
 Section 106(1) of the CA states that the Company shall enter the name of the
transferee in the register of members within 30 days from the receipt of the instrument of
transfer.
 Section 106(1) of the CA provides on the refusal to register.
 Section 106(2) of the CA states that when the shareholder fails to pay an amount due in
respect of those shares; or any grounds as stated in the company’s constitution.
 Ng Chong Wee v Ng Chong Geng & Sons SB, the directors have no discretion to
refuse to register a transfer of shares unless the articles so provide. Where discretion is
given to the board of directors to refuse to register a transfer, this power must be
exercised bona fide in what they consider is in the interests of the company and not for
any collateral purpose.
 Lim Ow Goik & Anor v Sungei Merah Bus Co Ltd When directors gives reasons for
refusal to register, the court may investigate the sufficiency of the reasons.

Transmission of Shares
 Distinction between transfer & transmission
 Re L.Y. Swee & Co Ltd, the ‘Transmission’ is used when shares are vested in
some person by operation of law, such as on the death or bankruptcy of a
member.
 Ng Chong Wee v Ng Chong Geng & Sons SB, a transfer is a voluntary
disposition of legal title to the shares brought about by an act of the shareholder; a
transmission, by contrast, is an automatic devolution of title which takes place by
operation of law upon the occurrence of a legally significant event, take for an
example, the death of the shareholder or the shareholder being adjudged a
bankrupt.
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 Section 109(1) of the CA states to write to the company if one wishes to be registered
as a shareholder as a result of a transmission of shares.

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 Section 109(4) of the CA states that a grant of probate or a letter of administration is

sufficient to be evidence to be accepted by the company.
 Section 109(5) of the CA states that the company shall register the person as a
shareholder within 60 days from the date receiving the notification.
 Section 109(6) of the CA states that the rights attached to the shares of that registered
person shall remain unchanged.
 Section 109(2) of the CA states that he may elect another person to be registered, by
transferring those shares to that person;
 Section 109(3) of the CA states that in executing the transfer, all laws and restrictions of
the Subdivision relating to a transfer and the registration of transfer shall apply to this
transfer.

- rationale of moving from par value to no par value

- liability of members on unpaid shares after the abolishment of par value
- classes of shares (when is there a variation of class right

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