Mercantile law

Share capital

Presented by : ISLAM SHAH Topic: SHARE CAPITAL Presented to: SIR IFTIKHAR AHMAD KHAN Roll no : 11236 Department : LAW & SHARIA 9th semester UNIVERSTY OF SWAT

Share capital: Definition :- It mean a particular amount of

money subscribed by the share holders for the purposes of the company.

The capital share is collected by a joint stock company for its business operation.

Capital share is the amount of capital collected from its share holder for achieving the common goal of the company as stated in memorandum of association.

Share capital

According to sec 90 of company ordinance a company have different kinds and classes of share capital as provided by its memorandum and Article of Association.

Classes of capital share

Share capita

l

Authorized capital

Paid-up-capital

Called-up-capital

Uncalled capital

Kinds of share capital

1. Authorized capital or nominal capital:-

It is the nominal value of the share which a company is authorized to issue by its memorandum.

2. Paid-up- capital:- It means the amount paid up on the shares issued.

3. Uncalled capital:- it mean the amount of money on the issued capital that has not been called in or which the subscriber are not required to pay within a specified time

Kinds of share capital

4. Called up share capital:- It mean the amount of money that the company has called-up on the issued capital which the subscriber are required to pay within a specified time.

5. Reserve capital:- It is the part of the share capital that the company has decided with only be called up if the company is being wind up and for the purpose of it being winding up.

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Under sec 90 of company ordinance 1984, company which is limited by share have different classes of share capital as provided by its memorandum and articles.

Capital share is mostly divided into four classes of shares:

1. Preference shares 2. Ordinary shares

Classes of share capital

3. Deferred shares 4. Redeemable preference shares.(1). Preference shares:- The holder of

preference share is entitled to a fix dividend before any dividend is paid up on the ordinary share. The article may grant additional rights to such holder.

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(2).Ordinary shares:- Generally it is the large part of net profits of a company, after paying the fixed dividends on the preference shares, if any is paid as dividend on the ordinary shares.

(3)Deferred shares:- These shares are usually allotted to the promoter and underwriters,

a) To the promoters in consideration of the services rendered by them,

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b) To the underwriters in consideration of the commission due to them.

According to Sec.53, the particulars of such contract shall be filed with registrar and the number of such shares must be stated in the prospectus.

4. Redeemable preference shares: Sec 85

A preference share which must be bought back by the company at an agreed date and for the an agreed price.

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So this type of share issued on the condition that the company will repay the amount of share capital to the holder of this category of shares after fixed period or even earlier at the discretion of the company.

Issuing of shares: Company may requires issuing of new shares for many reasons, such as bringing in business partners, raising capital from outside investor to fund expansion or pay for a new project, to pay debts, to introduce a bonus scheme for employees.

Issuing of shares

According to sec 86, where the director decide to increase the capital of the company by issue of further shares, such shares shall be offered to the members in proportion to the existing shares held by each member, because in case of issuing of shares the existing share holders have a prem-emptive right, so such offer shall be made by a notice specifying the number of shares to which the member is entitled and limiting a time within which the

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Offer, if not accepted so then the company is free of liability, and after it the director will offer it in similar manner as it deem to be fit for the interest of the company.

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The power to alter and the manner in which the alteration made is usually given by the articles. If no such power is given by articles then the company passed a special resolution for alteration. The capital share may be altered so as to increase or reduced shares.

Increase of share capital:- According to sec 92(1) A company limited by shares, may increase its share capital in general meeting if authorized by its articles.

Alteration of capital share

If the articles do not give the authority to increase the capital, the articles must be altered by special resolution so as to get such authority.

The resolution notice will be must sent to the registrar. Before issue of new share, it will be offered to the existing shareholder on the proportion of share which they already hold, and if the shareholder decline to accept, so then the director may dispose them in the manner as they think most beneficial to the company.

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Reduction of share capital:- According to section 96 the power to reduced capital must given by the articles. If no such power is given, the article may be changed by a special resolution. The capital may be reduced by passing a special resolution and subject to the confirmation of the court.

Procedure for reduction of capital (sec 97,99,100) :- where a company has passed a resolution for reducing share capital, it may apply by a petition to the court for an order confirming the reduction

Reduction of share capital

The petition must by supported by affidavits and a copy of the memorandum and article of association and the original minute book of the proceedings must be made an exhibit. So then according to sec 102, if the resolution is confirmed by the court , a certified copy of the court order and the minute of the resolution must be filed with the registrar. The registrar then issue a certificate which is conclusive evidence according to the requirement of company ordinance.

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Transfer of share:- It mean a voluntary passing of property in certain shares from one person to another by presenting to the company a duly stamped and executed instrument of transfer, by or on behalf of the transferor and the transferee, containing their names, addresses and occupations along with the shares certificates relating to the shares to be transferred.

Transfer and transmission of capital share

Regulation 8 and 10 of table A (First Sched.) contain the provisions regarding the transfer of capital shares.

According to regulation 8: the instrument of transfer of shares in the company shall be executed by both the transferor and transferee, and the transferor will be remain the holder unless the name of transferee is entered in the register of members in respect thereof.

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According to regulation 10, the director shall not refuse to transfer fully paid shares unless the transfer deed is defective or invalid.

Procedure of transfer of shares: According to sec 76 of company ordinance , an application for the registration of transfer of shares may be made either by the transferor or by the transferee. The company shall not register a transfer if it is not duly stamped and executed by the transferor and transferee.

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Transmission of shares:- It mean the passing of the title or property in shares by operation of law on the happening of such events as the death, insolvency or lunacy of a shareholder.

Regulation 11,12 and 13 of table A (First Sched.) regulates procedure for transmission of share.

According to regulation 11, the executors, administrators, heirs as the case be of deceased sole holder of a share be the only persons recognised by the company as having any titles to the share.

Transmission of shares

According to regulation 12, any person becoming entitled to a share in consequence of the death or insolvency of a member shall upon such evidence being produced as may from time to time be required by the directors, so then the director have the right to register him as a member as respect of the share, or to make such transfer of share as the deceased or insolvent person had made it.

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According to regulation 13, a person becoming entitled to a share by reason of death or insolvency of the holders shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share. But before registered as a member he shall not be entitled any right which is related to the meetings of the company.

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Definition:- The repurchase of outstanding shares by a company in order to reduce the number of shares on the market.

Companies will buy back share either to increase the value of share still available or to eliminate any threats by shareholders who may be looking for a controlling stake.

Buy back of company share

Explanation:- Generally buy back of company share are not allowed, but it is allowed in exceptional circumstances.

According to sec 95 A of the companies ordinance 1984 read with the company (buy back of shares Rules 1999) allows the listed companies to buy back their own shares with the condition that such shares shall not be retained as a treasury stock and shall be cancelled forthwith.

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The purchase shall be authorized by the permission of court, and the court will take the opinions of all members and creditors, and on the base of that opinions the court will give the permission for buy back of company share. The buy-back will be in good faith, and it will be sure to the registrar that the company is not becoming bankcrupt by buy back of share.

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There will be special resolution placing before the shareholders all material facts in justification of purchase.

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Thank you