TOPIC: SHARES<br /><ul><li>DEFINATION OF SHARES</li></ul>In Section 4 Companies Act 1965, shares means shares in the capital of a corporation, including stock. But there are differences between stocks and shares either expressed or implied.<br />Refers to the case Burland’s Trustee vs Steel Bros & Co. Ltd. <br />“Share an interest in the company's shareholders are assessed / measured by the amount of money for purposes of liability, interest and also represents a mutual agreement between the shareholders inter se.”<br />Means that, shareholders' interests and liabilities of the company is operating and when the winding-up occurred. <br /><ul><li>TYPES OF SHARES</li></ul>There are two types of shares, namely ordinary shares and preferred shares.<br />2.1 Ordinary Shares<br />In Section 4 Companies Act 1965, ordinary shares which are common stock are also called equity shares, as known as risk capital of a company. It will give holders the rights of ownership in the company and obligations of ownership are also conferred. <br />2.2 Preference Shares<br />In Section 4 Companies Act 1965, preferred shares are also known as preferred stock which has the right to dividend before ordinary shareholders to receive the payment. If the company is dissolution, the preferred shares will get the distribution of asset. <br />Preference shares usually have restricted or non-existent voting rights, and will not participate in distribution of surplus assets on winding-up unless they have been issued as participating preference shares. There are various types of preference shares: <br /><ul><li>Participating preference share
When the company is successful, the shareholder is entitled to participate in the profits beyond the fixed dividends by way of an additional fluctuating.
Preferred stock that is includes an option for the holders to convert the preferred shares into a fixed number of ordinary shares.</li></ul>3.0 PROSPECTUS<br />Corporate disclosure in a prospectus in relation to a public issue can serve as essential material to aid public investors in making an informed investment judgment before deciding whether or not to accept the offer. A prospectus is defined by Section 4(1) of the Companies Act is any prospectus, notice, circular, advertisement or invitation inviting applications or offers from the public to subscribe for or purchase or offering to the public for subscription or purchase any shares in or debentures of or any units of shares in or units of debentures of a corporation or proposed corporation. <br />S42 (1)A prospectus shall not be issued, circulated or distributed by any person unless a copy thereof has first been registered by the Registrar.<br />S 37(1) A person shall not issue, circulate or distribute any form of application for shares in or debentures of a corporation unless the form is issued, circulated or distributed together with a prospectus, a copy of which has been registered by the Registrar.<br />Penalty: Imprisonment for five years or one hundred thousand ringgit or both.<br />The central prohibitions are that application forms for shares and debentures may not be issued unless accompanied by a registered and those corporations may not invite the public to lend money unless a prospectus has already been registered. If you notice, prospectus is an invitation suggestion and recommendations made by the applicant and the acceptance will be made by the company. Thus, the basic principles of contract will apply. Once the company makes acceptance, the companies should divide the shares related to the applicant. Distribution of shares will not make the applicant as a member of the company automatically. Distribution of shares is contractual agreement whereby the company must meet the total number of shares set for the division and the party making the proposal to purchase is dependent upon receipt of shares made by the company. <br />Upon acceptance, the directors shall apportion the shares and send a notice to applicant. Allotment of shares and issuance of share is bringing different meaning. Issuing of shares will involve the full control by the shareholder on the number of shares owned by him.<br />3.1 Effect of allotment of shares<br />When a notification in respect of the allotment of shares has been in force, applicant:<br /><ul><li>be a members of company;
tied to the company's memorandum and articles; and
is liable to pay the balance of the nominal value of shares distributed to him (if any).</li></ul>3.2 Contents of prospectuses<br />If companies want to distribute the application forms along with the prospectus, a prospectus should be have all the requirement that required by the provision.<br /><ul><li>39(1)(a)shall be printed in type of a size not less than the type known as eight point Times unless the Registrar, before the issuing, advertising, circulating or distributing of the prospectus in Malaysia, certifies in writing, that the type and size of letters are legible and satisfactory;(b)shall be dated and that date shall, unless the contrary is proved, be taken as the date of issue of the prospectus;(c)shall as to one copy be lodged with the Registrar and shall state that a copy of the prospectus has been so lodged with and registered by the Registrar and shall also state immediately after that statement that the Registrar takes no responsibility as to its contents;(d)shall subject to Part III of the Fifth Schedule state the matters specified in Part I of that Schedule and set out the reports specified in Part II of the Schedule;(e)shall, where the persons making any report specified in Part II of that Schedule have made therein, or have, without giving the reasons, indicated therein, any such adjustments as are mentioned in paragraph 31 of that Schedule, have endorsed thereon or attached thereto, a statement by those persons setting out the adjustments and giving the reasons there for;(f)shall contain a statement that no shares or debentures or that no shares and debentures (as the case requires) shall be allotted on the basis of the prospectus later than six months after the date of the issue of the prospectus;(g)shall, if it contains any statement made by an expert or contains what purports to be a copy of or extract from a report, memorandum or valuation of an expert, state the date on which the statement, report, memorandum or valuation was made and whether or not it was prepared by the expert for incorporation in the prospectus;(h)shall not contain the name of any person as a trustee for holders of debentures or as an auditor or a banker or an advocate or a stock broker or share broker of the corporation or proposed corporation or for or in relation to the issue or proposed issue of shares or debentures unless that person has consented in writing before the issue of the prospectus to act in that capacity in relation to the prospectus and, in the case of a company or proposed company, a copy verified as prescribed of the consent has been lodged with the Registrar;(i)shall, where the prospectus offers shares in or debentures of a foreign company incorporated or to be incorporated, in addition contain particulars with respect to— the instrument constituting or defining the constitution of the company;the enactments or provisions having the force of an enactment by or under which the incorporation of the company was effected or is to be effected;an address in Malaysia where the instrument, enactments or provisions or certified copies thereof may be inspected;the date on which and the place where the company was or is to be incorporated; andwhether the company has established a place of business in Malaysia and, if so, the address of its principal office in Malaysia; and(j)shall, where the prospectus offers shares, notes or other marketable securities which have been specified by a stock exchange as prescribed securities under section 14 of the Securities Industry state that such shares, notes or marketable securities have been so prescribed and that applicants are required to have securities accounts when making their applications.</li></ul>The aim of the Section 39(1) is to balance the needs of investor protection with an efficient and credible capital market. The investor protection objective of the prospectus provisions aims to ensure that a minimum degree of disclosure of relevant, accurate information is provided by the company to potential investors so as to enable them to make an informed decision as to whether or not to invest. For this reason the prospectus provisions specify the type of information which must be provided and investments can only be made on application forms attached to a prospectus.<br />When the enforcement notice that, the company do not comply with this section, each director of the corporation and other person responsible for the prospectus shall be guilty of an offence against this section, they will penalty is imprisonment for five years or thirty thousand ringgit.<br /> <br /><ul><li>CLASS AND VARIATION OF RIGHT</li></ul>Each types of class of shares issued by the company will have their own particular right which are call class right. Most commonly class rights are given in the articles and are attached solely to the shares. However, in exceptional circumstance it is possible for class right to be attached to the shareholder as opposed to the shares (Cumbrian Newspapers Group Ltd vs Cumberland & Westmorland Herald Newspaper & Printing Co. Ltd.)<br />A corporation may authorize and issue shares of stock in different "classes", each of which has different rights. The shareholders of each of the classes exercise these rights. For example, a corporation may issue two types of "common stock" and two types of "preferred stock". The names of these shares may be abbreviated as "Class A Common", "Class B Common". <br />In the event of the classes of shares exist in the memorandum of association; the right cannot be changed because the memorandum may only be amended in accordance with the provisions permitted by Section 21 (1) of the Companies Act 1965. If the rights of the class of shares specified in the articles of association, it can be changed by amending the articles of association. According to Order Sign A, Article 2, the Board normally has the power to determine the rights of these classes, but must be approved by an ordinary resolution by the company.<br />If there is a clause variations / modifications to the rights of this class of shares, amendments may only be exercised in accordance with all procedures specified in clause variations / modifications are. <br />In the case of Crumpton v Morrine Hall Pty Ltd., the company has a building that is divided into six residential units. Articles of association clause provide that states that the company's share capital is divided into different classes. Holders of each class of shares have exclusive rights to use the unit accommodation. There is a modification of the rights clauses included in the article, namely:<br />"Approval of a majority of the class of shares is required when matters relating to the <br />rights holders of the class to make any changes."<br />Resolution was approval to amend the articles of association to include a provision to prohibit the right of rental accommodation units. Plaintiff has made objections to the resolution approval because the plaintiff never agreed to the amendment of articles of association does not affect the rights of the plaintiff because no amendments were made in accordance with clause modifications stated in the article.<br />According to section 65 (1), the shareholders holding not less than the class, if their rights have been varied or revoked may within one month after the diversification and / or cancellation rights apply to the court to revoke the right of diversification and / or cancellation. If any application is made, diversification or cancellation rights are not effective until approved by the court.<br />65(1) If in the case of a company the share capital of which is divided into different classes of shares provision is made by the memorandum or articles for authorizing the variation or abrogation of the rights attached to any class of shares in the company, subject to the consent of any specified proportion of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares, and in pursuance of the said provision the rights attached to any such class of shares are at any time varied or abrogated the holders of not less in the aggregate than ten per centum of the issued shares of that class, may apply to the Court to have the variation or abrogation cancelled, and, if any such application is made, the variation or abrogation shall not have effect until confirmed by the Court.<br />According to section 65 (2), the shareholders still have rights even though they may never agree on diversification or cancellation of agreement conditions granted for a number of material facts not disclosed to them. If the court is satisfied that the material facts are not disclosed, before they agree or vote, they can apply to not enforce the diversification or the cancellation<br />65(2)An application shall not be invalid by reason of the applicants or any of them having consented to or voted in favour of the resolution for the variation or abrogation if the Court is satisfied that any material fact was not disclosed by the company to those applicants before they so consented or voted.<br />Section 65 (3) states the application must be made within one month after the date of agreement is given or the resolution approval, or within such further time permitted by the court. Applications can also be made by a representative, provided that the appointment is be made in written.<br />65(3)The application shall be made within one month after the date on which the consent was given or the resolution was passed or such further time as the Court allows, and may be made on behalf of the shareholders entitled to make the application by such one or more of their number as they appoint in writing.<br />In section 65 (4), on application by the court if satisfied that the cancellation would be detrimental to any shareholder, may not allow the diversification or the cancellation of the Court and the decision is the final.<br />65(4)On the application the Court, after hearing the applicant and any other persons who apply to the Court to be heard and appear to the Court to be interested, may, if satisfied having regard to all the circumstances of the case that the variation or abrogation would unfairly prejudice the shareholders of the class represented by the applicant, disallow the variation or abrogation as the case may be and shall, if not so satisfied, confirm it, and the decision of the Court shall be final.<br />5.0 SHARE BUY BACK<br />The term buy-back of share implies the act of purchasing its own shares by a company either from free reserves, securities premium, or proceeds of any shares of securities. Prior 1997, companied in Malaysia were not allowed by Companies Act 1965 to repurchase their own shares. After 1997, Section 67 of Companies Act 1965 was amended and allows a public listed company to purchase their own shares. A company shall not make share buy-back unless,<br /><ul><li>The company is able to pay all the shares to be purchased on the date of purchase. It was not insolvent when the debts incurred by the company for paying all shares that were purchased.
Purchases made through the stock exchange and the stock has been referred to and in accordance with the appropriate stock exchange rules.
The purchases are for interest of the company and made in the good faith. </li></ul>5.1 Accounting Methods for Share Buy-back <br />With the amendment to Section 67A, two alternative methods of accounting for share buybacks are permissible. <br /><ul><li>Share retirement method
Appropriate when the company intends to cancel the shares repurchased and retired immediately. They have no intention to reissue back their shares back to the shareholders.
The nominal value of the shares repurchased should be cancelled by debiting the share capital account and crediting the capital redemption reserve.
More appropriate when a company, which repurchases its own shares, intends to reissue the repurchased shares subsequently. The share which had been repurchased, can distributes as share dividends to the shareholders or the shares were reissued in the open market. </li></ul>6.0 REFERENCES<br /><ul><li>6.1 Books BIBLIOGRAPHY CIMA. (1994). Company Law. London: At Foulks Lynch Ltd.Douglas Smith, S. (1999). Company Law. Gulf Professional Publishing.et., A. A. (2010). Financial Accoung & Reporting. Selangor: Pearson.et.al., A. A. (2005). Undang-undang. Sintok: Pusat Penyelidikan Profesional dan Lanjutan (PACE).et.al., Z. A. (2010). Financial Reporting Standards Requirement and Applications in Financial Accounting and Reporting. Selangor: Pearson.Graham Stedman, J. J. (1998). Shareholders' Agreements. London: Sweet & Maxwell.Hardman, R. (1987). Stocks & Shares. London: Telegraph.James, J. (1993). Company Law. London: The Cavendish Q & A Series.Services, I. L. (2010). Akta Syarikat 1965 (Akta 125). Selangor: Syarikat Percitakan Ihsan.Temple, P. (1996). Getting started in shares. Chichester.6.2 Internethttp://www.mia.org.my/new/downloads/education/qualifying/candidate/past/2009/09/answers/biz.pdf, MIA, 29 February 2011, 4.32pmhttp://www.proeconomics.com/law/company/the__procedure__for_variation__of_class_rights.html, PRO ECO, 28 March 2011, 12.38pmhttp://www.maicsa.org.my/download/students/students_cca/students_cca_answer_csf.pdf, MAICSA, 28 March 2011, 3.56pmhttp://www.definitions.net/definition/prospectus, Definition.net, 28 March 2011, 11.56pmhttp://smallbusiness.yahoo.com/r-answers-a-20071010074340AAo7bpi-k-shareholders+rights, Yahoo Small Business, 28 March 2011, 5.28pm