Page 266 - DMGT407Corporate and Business Laws

Unit 11: Prospectus, Shares and Share Capital

Notes
Table 11.1: Share and Stock

Share Stock
A share has a nominal value. A stock has no nominal value.
A share has a distinctive number which A stock bears no such number.
distinguish it from other shares.
Share can be issued originally to the public. A company cannot make an original issue of
stock. Stock can be issued by existing company
by converting its fully paid-up shares.
A share may either be fully paid-up or partly A stock can never be partly paid-up it is always
paid-up fully paid-up.
A share cannot be transferred in fractions. It is A stock may be transferred in any fractions.
transferred as a whole.
All the shares are of equal denomination. Stock may be of different denominations.
Shares can be issued by any company public or Stock can be issued only by a public company
private. limited by shares.

A company cannot make an original issue of the stock. A company limited by shares may, if
authorised by its Articles by a resolution passed in the general meeting, convert all or any of its
fully paid-up shares into stock [s.94 (1) (c)]. On conversion into stock, the register of members
must show the amount of stock held by each member instead of the number of shares. The
conversion does not affect the rights of the members in any way.

11.3.3 Classes of Shares

As mentioned above, a share carries certain rights and is subject to some obligations. A company
may issue all shares with same rights and obligations. However, it may issue different types of
shares with different rights and liabilities attached to them so as to satisfy the needs of different
types of investors. In such a case, the rights attached to the different classes of shares are called
class rights. The class rights normally relate to voting, dividends, return of capital or share in the
surplus assets of the company (the last two rights being available at the time of winding up) and
are invariably set out in the articles of the company. The most common classes of shares are:
(1) Preference; (2) Equity or Ordinary; and (3) Deferred or Founders’. A public company and a
private company which is a subsidiary of a public company may not issue shares other than
equity, preference and cumulative convertible preference shares (CCPS).
The Companies (Amendment) Act, 2000, substituted a new section for s. 86. It provides that the
share capital of a company limited by shares shall be of two kinds only, namely: (a) equity share
capital (i) with voting rights; or (ii) with differential rights as to dividend, voting or otherwise
in accordance with such rules and subject to such conditions as may be prescribed; (b) preference
share capital.

11.3.4 Preference Share

A preference share is one which carries the following two rights over holders of equity shares:
(i) a preferential right in respect of dividends at a fixed amount or at a fixed rate and
(ii) a preferential right in regard to repayment of capital on winding up.
The preference or priority of the preference shareholders is in relation to the rights of equity
shareholders [s.85].
Participating and non-participating. If a preference share carries either one or both of the
following rights then it is known as participating share: (i) to participate further in the profits

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