Share Capital

1. Nelfi Amiera Mizan
FOL, MMU 2016
Topic 4 - Shares Capital I
4.1 - Introduction
 Most common type of source of finance.
 Company limited by shares issues and allots
shares to a shareholder in return for capital
(money or assets)
 How public company acquire public funding by
offering or inviting public to subscribe to its
securities = shares !
> Share / equity Capital
Meaning of Shares
 s 4 - share in the share capital of a corporation and
includes stock except where a distinction between
stock and shares is expressed or implied;

2. Nelfi Amiera Mizan
FOL, MMU 2016
Borland’s Trustee v Steel Bros & Co Ltd
“a share is the interest of a 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 inter se in accordance with s.33. The
contract contained in the articles of association is
one of the original incidents of the share”
* s.33 - MA and AA binds the company and members
 Nature of shares: s 98 CA
The shares or other interest of any member in a company
shall be movable property, transferable in the manner
provided by the articles, and shall not be of the nature of
immovable property.
- a movable property
- choses in action; ownership of shares confers rights
on the shareholders which are enforceable by law.
- They may be bought & sold, bequeathed and given
as security.
4.2 - Capital Structure (Types of Capital)
i. Authorised / Nominal / Registered Capital
 Sec. 18(1) (c) CA - requires companies to state,
in their MOA, the amount of their authorized or
nominal capital.
> It represents the maximum value of shares that the
company can issue / total amount of capital which
the company is allowed to issue.
> share capital that company proposes to be
registered and its division into shares of fixed
amount
> Company cannot allot shares in excess of the
company’s authorised share capital
Bank of Hindustan, China & Japan Ltd v Alison
Any allotment of shares in excess of the company’s
share capital is void

3. Nelfi Amiera Mizan
FOL, MMU 2016
ii. Issued Capital
 Represents the nominal value of share capital
which has been issued to its members
> The nominal capital which has actually been
allotted and issued to the shareholders.
 Company is not bound to allot all its capital at
once.
A share is issued only if the name of shareholder has
been registered in the register of members in
respect of those shares.
iii. Paid up Capital
 The amount actually paid to a company for
shares allotted / issued to a shareholder.
 If a shareholder makes a full payment of the
purchase price of the share, the amount
received is referred to as fully paid up capital.
 If the company permits the shareholder to make
only partial payment of the total purchase price,
such shares are referred to as partly paid up
shares, with remaining balance recorded in the
same company’s account as an amount that the
company may call upon in the future (uncalled
capital)
iv. Called up Capital
 The total amount called up by the company on
the shares allotted.
 Company is entitled to make a call at a later time
for some / all of the balance owing on the share.
v. Reserve/ Uncalled Capital
 Company may issue shares that are partly paid
 Amount unpaid = reserve capital / uncalled
capital
 The capital where a company has not yet called
for payment of full nominal value.
Conclusion: A company may issue shares up to the
limit of its authorised share capital. Where shares are
issued, they are allotted to the holders who become
members after their names are entered in the
register of members.
* The capital clause; the capital that is authorised by
the MOA

4. Nelfi Amiera Mizan
FOL, MMU 2016
Variation of Authorised Capital:
s 62 CA
How to issue shares in excess of its existing
authorised share capital?
a. Increasing Authorised Capital: s 62(1)(a) CA
- If need to issue shares in excess of its existing
authorised share capital, company must first increase
its authorised share capital in accordance with s 62
CA.
 s 62(1)(a) - A company if so authorized by its
articles may in general meeting alter the conditions of
its memorandum in any one or more of the following
ways:
(a) increase its share capital by the creation of
new shares of such amount as it thinks expedient;
 S62 (4) - Where a company has increased its share
capital beyond the registered capital, it shall within
fourteen days after the passing of the resolution
authorizing the increase lodge with the Registrar
notice of the increase.(CCM)
 S62(5) - If any company fails to comply with
subsection (4) the company and every officer of the
company who is in default shall be guilty of an offence
against this Act. Penalty: One thousand ringgit.
Default penalty.
 art 40(a) - The company may from time to time by
ordinary resolution— (a) increase the share
capital by such sum to be divided into shares of such
amount as the resolution shall prescribe;

5. Nelfi Amiera Mizan
FOL, MMU 2016
b. Consolidation: s 62(1)(b) CA
(b) consolidate and divide all or any of its share capital
into shares of larger amount than its existing shares;
- Number of shares will be reduced but capital
remains unchanged.
- (each unit of share is of larger value now)
c. Conversion into stock: s 62(1)(c) CA
(c) convert all or any of its paid-up shares into stock and
reconvert that stock into paid-up shares of any
denomination;
d. Subdivision: s 62(1)(d) CA
(d) subdivide its shares or any of them into shares of
smaller amount than is fixed by the memorandum, so
however that in the subdivision the proportion between the
amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in the case of
the share from which the reduced share is derived; or
- Number of shares will be increased but capital
remains unchanged.
- (each unit of share is of smaller value now)
e. Cancel shares which have not been taken:
s 62(1)(e) CA
(e) cancel shares which at the date of the passing of the
resolution in that behalf have not been taken or agreed to
be taken by any person and diminish the amount of its
share capital by the amount of the shares so cancelled
 Reduction does not result in the company
contravening the rule that a company limited by
shares is prohibited from returning any part of
its paid up share capital to its SH. This is because
shares cancelled have not been issued and thus
the interest of creditors are not affected
 S 62(2) - A cancellation of shares under this
section shall not be deemed to be a reduction of
share capital within the meaning of this Act.

6. Nelfi Amiera Mizan
FOL, MMU 2016
4.3. Issues and Allotment of Shares
 Contractual rules: offer and acceptance
 Invitation to the public – by company.
 Offer – by the public - usually fill in a form
 Acceptance - by the company when through its
directors, decides to allot shares and sends the
applicant a notice of allotment
Meaning of “Allotment” AND “Issue”
An allotment of shares is the process in which a
person is given the right to be included in the
register of members within a specific company.
An issuance of shares is when the person is
actually issued the shares in which they are
deemed entitled to.
Commonweath Homes & Investment Co Ltd v Smith
(per Dixon J)
But an ‘allotment’ of shares really bears a double
aspect. In the formation of a contract of membership
it may be the acceptance of the offer constituted by
the application or the making or authorization of an
offer or counter-offer accepted by the subsequent
assent of the allottee. But it is also the
appropriation of a given number of shares to the
allottee. Shares are personal property. Allotment,
entry in the share register and the sealing and
delivery of share certificates are matters of fact
which constitute the issue of shares, considered as a
form of property.

7. Nelfi Amiera Mizan
FOL, MMU 2016
Raja Khairulzaman Shah Bin Raja Aziddin v Zaman
Indah Sdn Bhd
it was said that an “allotment” was the
appropriation to a person of a certain number of
shares, but not necessarily create the status of
membership even when the contract to take the
shares is complete.
Consideration of Shares
1. Cash and non-cash consideration
 Most cases, consideration a company receives
when it issues shares is CASH.
 However, it is common also for companies to
issue shares for a consideration OTHER THAN
CASH
Re Wragg Ltd
Consideration in a form other than cash is permitted
Malaysia: Allotment for consideration other than
cash is valid
– implied from s 54(2)(b) CA and Form 25.
(2) The particulars mentioned in paragraph (1)(d) need not
be included in the return where a company to which
subsection 166(1) applies has allotted shares—
(b) for a consideration other than cash and the number
of persons to whom the shares have been allotted exceeds
five hundred
2. Nominal/par value of shares
 Shares issued must have a nominal or par value
Meaning: Fixed amount s.18(1)(c)
Ooregum Gold Mining Co v Roper

8. Nelfi Amiera Mizan
FOL, MMU 2016
Company must receive money worth equal to the
nominal or par value of the shares allotted
3. Fully paid and partly paid shares
Ooregum Gold Mining Co of India Ltd v Roper
Shares held by SH will only be deemed to be fully
paid up when a company receives payment that is
equivalent to the nominal or par value
 As the co did not receive a payment that is
equivalent to the par value of shares, those
shares shall be deemed to be partly paid up
shares
 Co’s AA usually provide the co with enforceable
rights against a SH who holds partly paid up
shars in a co.

9. Nelfi Amiera Mizan
FOL, MMU 2016
What happens if shareholders fail to pay
upon calls?
(a) Forfeiture on non-payment of calls
 Power to make calls is usually conferred on
directors.
 Table A, art 13 - The directors may from time to time
make calls upon the members in respect of any
money unpaid on their shares..
 Table A, art 16-17 -
16. If a sum called in respect of a share is not paid before
or on the day appointed for payment thereof, the person
from whom the sum is due shall pay interest..rate not
exceeding 8 per cent per annum...
17. ... forfeiture, or otherwise shall apply as if the sum had
become payable by virtue of a call duly made and notified.
 Table A, art 28-32
* Call = a debt due from the shareholder to the
company
 if default in payment, liable for interest ≤8% p.a.

10. Nelfi Amiera Mizan
FOL, MMU 2016
 steps torecover:forfeitandauction.
- director to issue a notice to errant shareholders
requiring payment.
- notice shall name at least 14 days after service
of notice. If shareholder fails to pay at or before the
time appointed, shares will be liable to be forfeited.
- directors are allowed to forfeit unpaid shares.
- forfeited shares may be sold or otherwise
disposed of
- person whose shares are forfeited remains liable
to the company for the amount unpaid on the
shares, together with interest.
(b) Lien on Shares
 Table A, art 9-12
 Right of company to hold shares of members as
security for repayment of a debt owing by
members to company.
> Company may sell the shares in the manner
provided under the articles if a sum in respect of
which the lien exists is presently payable, or until
expiration of a specified time in a notice served on
shareholder or the legal representative (in the case
of death of bankruptcy).

11. Nelfi Amiera Mizan
FOL, MMU 2016
Power to issue shares
 s 132D(1) CA: Rests with members of general
meeting
(1) Notwithstanding anything in a company's
memorandum or articles, the directors shall not,
without the prior approval of the company in general
meeting, exercise any power of the company to issue
shares.
 s 132D(6) CA: Effect of contravention of s 132D
CA.
(6) Any issue of shares made by a company in
contravention of this section shall be void and
consideration given for the shares shall be recoverable
accordingly.
 s 132D(7) CA: Liability of director who knowingly
contravenes s 132D CA.
(7) Any director who knowingly contravenes, or permits or
authorizes the contravention of, this section with respect to
any issue of shares shall be liable to compensate the
company and the person to whom the shares were
issued for any loss, damages or costs which the
company or that person may have sustained or incurred
thereby; but no proceedings to recover any such loss,
damages or costs shall be commenced, notwithstanding
the provisions of the Limitation Act 1953, after the
expiration of three years from the date of the issue.
Issue of Shares at a discount
Ooregum Gold Mining v Roper
Co issues and allots shares to SH as being fully paid
up when in fact the company has only received an
amount less than the nominal or par value = issue
and allotment of shares at a discount
Prohibition:
1. Contrary to s.18(1)(c) and s.214(1)(d)
Ooregum’s case: every member who takes shares
liable to contribute their full nominal value
2. Encourage discrimination
Directors choose to issue shares at discount to some
of the SH
3. Infringe the rights of SH who pays the full
amount
In case of surplus during winding up, not fair for the
one who paid at discount to gain as much as the one
who paid full
4. Contravene s.67(1)
Prohibits company from giving financial assistance

12. Nelfi Amiera Mizan
FOL, MMU 2016
Implication for shareholders
o Shareholder continues to remain liable to pay its
full nominal value to the company,
Ooregum Gold Mining Co of India Ltd v Roper
Shareholder continues to remain liable to pay its full
nominal value to the company
Implication for company’s officers
o s.67(1) > not company but the company’s officer
who is liable and committed offence under s.67(3)
o Ct may order officer to pay compensation to
company or any person for loss - s.67(4)
Exceptions to the rule against issuing and allotting
shares at a discount
 S 58 CA - covers the legitimate practice of paying
underwriting commission.
 S 59 - authorised by ordinary resolutions

13. Nelfi Amiera Mizan
FOL, MMU 2016
 S 59 CA. - (1) Subject to this section a company may
issue shares at a discount of a class already issued
if—
(a) the issue of the shares at a discount is authorized by
resolution passed in general meeting of the company,
and is confirmed by order of the Court;
(b) the resolution specifies the maximum rate of discount
at which the shares are to be issued;
(c) at the date of the issue not less than one year has
elapsed since the date on which the company was entitled
to commence business; and
(d) the shares are issued within one month after the date
on which the issue is confirmed by order of the Court or
within such extended time as the Court allows.
Issue and Allotment of Shares at a
Premium
 When a company receives an amount that is in
excess of the nominal / par value of the shares
issued and allotted.
 Share premium account
Henry Head & Co Ltd v Ropner Holdings Ltd
Where a company issues shares at a premium
(whether in cash or in the form of other valuable
consideration), CA requires that “a sum equal to the
aggregate amount or value of the premium on those
shares” must be transferred to “share premium
account”.
 Share premium account is treated as paid up
share capital of the company for the purpose of
share capital reduction: s 60(2) CA.
 S. 60(4) - Does not have to create a premium
account if company issues shares in
consideration for the acquisition of at least 90%
of the equity shares

14. Nelfi Amiera Mizan
FOL, MMU 2016
 How a company can apply its share premium
account: ss 60(3) CA; 67A(3) CA.
- Premium cannot be returned to shareholders
otherwise than in the manner prescribed by ss 60(3)
and 64 CA.

15. Nelfi Amiera Mizan
FOL, MMU 2016
Validation of Shares improperly
issued
- S 63 CA empowers the court to validate an
improper issue or allotment of shares if it thinks that
it is just and equitable to make such an order.
- Application may be made by the company, a
shareholder or creditor of the company.
Millheim v Barewa Oil and Mining NL
Re Swan Brewery Co Ltd (No.2)
Kelapa Sawit (Teluk Anson) Sdn Bhd v
Yeoh Kim Leng
Application was made to validate shares that had
been issued by persons who were not the company
directors
SC held: Ct should refuse to exercise to validate the
shares issued. Because the person who is not
directors issues and not the company. No such
validation needed.

16. Nelfi Amiera Mizan
FOL, MMU 2016
4.4 Classes of Shares
General rule: all shares having same par value
enjoy same rights irrespective of the amounts paid.
 Shares with different rights - different classes of
shares.
 Shares issued carry different rights
 Table A, art 2- Without prejudice to any special
rights previously conferred on the holders of any
existing shares or class of shares but subject to
the Act, shares in the company may be issued by
the directors and any such share may be issued
with such preferred, deferred, or other special
rights or such restrictions, whether in regard to
dividend, voting, return of capital, or otherwise,
as the directors, subject to any ordinary
resolution of the company, determine.
 Rights attached to shares may differ in regard to:
(a) entitlement to dividends
(b) priority in relation to payment of dividend
(c) voting right
(d) priority in repayment of capital on winding up
(e) right to participate in a distribution of surplus
assets upon winding up
 Most common types of different classes of
shares in Malaysia:
(a) Ordinary/equity shares
(b) preference shares
Ordinary/ Equity Shares
 Sec. 4 - "equity share" means any share which is not
a preference share
 Common characteristics of ordinary shares:-
 not entitle to fixed/cumulative dividends
 no priority in payment of dividends
 right to participate in meeting and voting
 right to be repaid their capital on a winding up
after all other claimants have been repaid
 right to share pro rata in any surplus assets on a
winding up
* Pro Rata - proportional
 Fixed dividends or cumulative dividends
(increased dividends)
 Dividends only to be paid to the ordinary SHs
after preference SH have been paid
 General rights to participate beyond a specified
amount in any distribution whether by way of
dividend, or redemption, in a winding up or

17. Nelfi Amiera Mizan
FOL, MMU 2016
otherwise (may vote)
Preference shares
 S 4 CA - "preference share" means a share by
whatever name called, which does not entitle
the holder thereof to the right to vote at a
general meeting 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
 Common characteristics:-
 normally has fixed and cumulative dividend
 priority to a return of capital on a winding up
 non-participating as to surplus both while the
company is a going concern and on a winding
up.
 not entitle to attend and vote at general meeting
Exception: restricted rights may be specified in
company’s article: s 148(2) CA
(2) Notwithstanding subsection (1), the articles may
provide that the right of holders of preference shares to
attend and vote at a general meeting of the company
may be suspended upon such conditions as may be
specified:
Provided that any preference shares issued after the
commencement of this Act shall carry the right to attend
any general meeting and in a poll thereat to at least one
vote for each ringgit or part of a ringgit that is paid up on
each share—
(a) during such period as the preferential dividend or any
part thereof remains in arrear and unpaid, such period
starting from a date not more than twelve months, or such
lesser period as the articles may provide, after the due
date of the dividend;

18. Nelfi Amiera Mizan
FOL, MMU 2016
(b) upon any resolution which varies the rights attached
to such shares; or
(c) upon any resolution for the winding up of the
company.
 Right of preference shareholders to be set out in
the company’s constitution: s 66 CA
 s 66(1) CA - No company shall allot any preference
shares or convert any issued shares into preference
shares unless there is set out in its memorandum or
articles the rights of the holders of those shares with
respect to repayment of capital, participation in
surplus assets and profits, cumulative or
non-cumulative dividends, voting, and priority of
payment of capital and dividend in relation to other
shares or other classes of preference shares
 Contravention of s 66(1) CA – Offence: s 66(2) CA
If default is made in complying with this section the
company and every officer of the company who is in
default shall be guilty of an offence against this Act.
Penalty: Two thousand ringgit.

19. Nelfi Amiera Mizan
FOL, MMU 2016
4.5 Class rights
Definition: Particular rights annexed to certain
shares.
 Classification of class rights was broadened in an
unorthodoxed way in:
Cumbrian Newspapers Group Ltd v Cumberland and
Westmorland Herald Newspaper and Printing Co Ltd
Although the claimant’s rights were not rights
annexed to particular shares in the way 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.
 Significance or value of a right being classified as
a “class right” - in general, it cannot be varied
without the consent of the class.
Variation of Class Rights
 The Act and Table A has provisions that are
designed to protect class rights from being
varied or abrogated
 Common law position
 When does variation of class rights occur?
- when the strict legal rights attached to a class of
shares are varied and not when the economic value
attached to that class shares is effected
 Distinction between variation of class rights and
variation in the enjoyment of class rights.
 Test: whether after the amendment of the
articles/passing of resolution, shareholders in
question have the rights they had before the
amendment/passing of resolution - If still have
same rights, no variation of class rights.

20. Nelfi Amiera Mizan
FOL, MMU 2016
Greenhalgh v Arderne Cinemas Ltd
Instead of Greenhalgh finding himself in a position of
control, he finds himself in a position where the
control has gone, and to that extent his rights are
affected as a matter of business. As a matter of law, I
am quite unable to hold that, as a result of the
transaction, the rights are varied; they remain what
they always were – a right to have one vote per share
pari passu with the ordinary shares for the time
being issued which include the new 2s ordinary
shares resulting from subdivision.
White v Bristol Aeroplane Co
 Variation of class rights in accordance with CA
 S. 65(6) CA - (6) The issue by a company of
preference shares ranking pari passu with
existing preference shares issued by the
company shall be deemed to be a variation of
the rights attached to those existing preference
shares unless the issue of the first-mentioned
shares was authorized by the terms of issue of
the existing preference shares or by the articles
of the company in force at the time the existing
preference shares were issued.
 Table A, art 5 - adopted the approach taken by
CA in s 65(6) CA. - The rights conferred upon the
holders of the shares of any class issued with
preferred or other rights shall, unless otherwise
expressly provided by the terms of issue of the
shares of that class, be deemed to be varied by
the creation or issue of further shares ranking
equally therewith.
 s 65(6)CA and Table A, art 5 take a different
approach to the common law.
 s 65(7) CA. -Any alteration to the modification of
rights clause shall also be deemed to be a
variation of class rights.

21. Nelfi Amiera Mizan
FOL, MMU 2016
Protection against non observance of
class rights
Contract basis:
s 66 CA : rights of holders pref shares to be
set out in MOA / AOA
s 33(1) CA : effect of MOA & AOA : binding
s 181 CA : remedy in cases of oppression
 Entrenching class right by inserting class rights in
the memorandum: s 21 (1B) CA.
- s 21(1A) and s 21(1B) CA: If class rights are
contained in the memorandum of association, they
cannot be varied.
Protection afforded by articles.
Where the articles of a company authorise the
creation of different classes of shares, it is usual for
the articles to provide for the variation of the class
rights to be in accordance to the procedure
prescribed by the company’s articles and not
otherwise.

22. Nelfi Amiera Mizan
FOL, MMU 2016
Crumpton v Morrine Hall Pty Ltd
Where the articles of a company authorise the
creation of different classes of shares, it is usual for
the articles to provide for the variation of the class
rights to be in accordance to the procedure
prescribed by the company’s articles and not
otherwise.
Variation or modification of rights clause
in the company’s articles.
- If a company adopts Table A as its articles, the
required procedure to vary class rights is set out in
Table A, art 4:
(a) convene separate class shareholders meeting.
Meeting is to be attended by shareholders of that
class of shares whose rights are to be varied.
(b) shareholders of 3 /4 of the issued shares of the
class whose rights are to be varied must give their
consent in writing or pass a special resolution
consenting to the proposed variation of class rights.
Statutory protection against variation of rights: s 65
CA
- Application to High Court to cancel the variation or
abrogation by holders of not less than 10% in the
aggregate of the issued shares of that class which
was affected by the variation or abrogation.