Shares represent a shareholder's ownership interest in a company. There are two main types of shares - ordinary shares and preference shares. Ordinary shares carry voting rights while preference shares have priority over ordinary shares in the payment of dividends and repayment of capital. A share certificate is no longer mandatory under the Companies Act 2016 but still serves as evidence of share ownership. Shares can be transferred through a duly executed instrument of transfer, but companies can impose restrictions on transfers. Forgeries are considered void and the true owner's name must be restored on the register of members.

1. SHARES

2. WHAT ARE SHARES?
• Section 2 CA 2016 - a share is “share capital of a
company and includes stock except where a
distinction between stock and shares is
expressed or implied.”
• Section 105 - “....., any shareholder or debenture
holder may transfer all or any of his shares or
debentures in the company by a duly executed
and stamped instrument of transfer….”

3. NATURE OF SHARES
• The legal nature of share is set out in Section 70 CA
2016 which provides that a share is a personal
property and transferable in accordance with
Section 105 CA 2016.

4. In the case of Borland’s Trustee v Steel Bros & Co. Ltd
[1901] 1 Ch 279, the court stated that shares represent
the interest of a shareholders in the company
measured by a sum of money for the purpose of
liability in the first place and the interest in the second
place, but also consisting of a series of mutual
covenants entered into by all the shareholders inter se.
• Mutual covenants : agreement by all members to be
bound by the company’s constitution.

5. THE SHARE CERTIFICATE AND ITS EFFECT
• The share certificate is a prima facie evidence of
the title of a member in a company to the number
of shares specified in the certificate – Section
100(1) of CA 1965.
• However, under the new CA - Section 101(1) CA
2016 :…Register of Members….prima facie evidence
of that legal title to the share - will enablethe
company to ascertain the identity of its members.

6. • A company shall not be required to issue a share
certificate unless required by the shareholder. (Sec
97(1) CA 2016.
• This is in contrast from the previous CA 1965 where
a share certificate is a prima facie evidence of legal
ownership. Hence, it was mandatory to issue the
certificate.

7. CONTENTS OF SHARE CERTIFICATE
Section 98 CA 2016
• Name of the company;
• Class of the shares held by the shareholder,
and;
• The number of shares held by that person.

9. DELIVERY OF SHARE CERTIFICATE – TIME FRAME
• Company must deliver share certificate to the
shareholder within SIXTY DAYS (60) upon
application by him – Sec 98 (1) CA 2016
• Failure to deliver the share certificate, the
shareholder has 2 options:
(a) Serve notice to the company to deliver the
certificate within 14 days; or
(b) If still refuse, apply to Court compelling the
company to deliver the certificate.

10. CLASSES OF SHARES
• Shares with the same rights in all aspects
considered shares of the same class.
• Should state clearly in the Constitution to
accommodate different classes of shares
and their voting rights.
• Usually, a company may issue two types of
shares:
1. Ordinary Shares (Sec 71 CA 2016)
2. Preference Shares (Sec 72 CA 2016)

11. ORDINARY SHARES & ITS RIGHTS
Ordinary shares or sometimes referred to as equity
shares are shares which are not given any special rights,
it carries all the rights of the ordinary member.
• Right to attend, participate and speak at a
meeting;
• The right to vote on a show of hands on any
resolution of the company
• The right to one vote for each share on a poll
on any resolution of the company
• The right to an equal share in the
distribution of the surplus assets of the
company; or
• The rights to an equal share in dividends
authorised by the Board.
Rights of Ordinary
Shares: (Section
71 CA 2016)

12. PREFERENCE SHARES & ITS RIGHTS
Definition of preference shares – Section 2 CA 2016.
Section 72(2) CA 2016 provides that if the company issues preference
shares, a company may issue PS which are liable, or at the option of
the company to be liable, to be redeemed in accordance to the
Constitution.
Rights - subject to the Constitution (Sec 90 (4) CA
2016)

13. Rights - which are subject to the Constitution (Sec 90 (4) CA 2016:-
Repayment of capital
Participation in surplus assets and profit
Cumulative & non-cumulative dividends.
Voting and priority of payment of capital and dividend.

14. REDEEMABLE PREFERENCE SHARES
• Section 72 (2), (3) & (4) allows company to issue
redeemable preference shares if authorised by its
Constitution.
• It allow for the repayment of the principal (capital)
at a particular time or on the occurrence of a
particular even prior to winding up.
• Shares redeemed under Section 72 are treated as
cancelled on redemption.
• Can only be undertaken if the Directors have to pass
the Solvency Test under Section 113.

15. CUMULATIVE PREFERENCE SHARES
• Holder of cumulative preference shares carries
forward their entitlement to a distribution from one
year to the next year if no dividend is declared in a
particular year.
• E.g: In 2009, no dividend is declared by the
company. In 2010, company declares dividend;
cumulative preference shareholder is entitled to get
dividend in 2009 and 2010.

16. NON-CUMULATIVE PREFERENCE SHARES
• The holder of such shares is only entitled to the
specified rate of dividend out of profits of the
current year where the dividend is declared and
paid.
• The holder lost its entitlement to any dividend that
is not declared and paid in the relevant year.

17. PARTICIPATING PREFERENCE SHARES
• The holder of such shares is entitled to participate
in the profits beyond the fixed dividends, by way of
an additional fluctuating dividend if the company is
successful.
• The holder of participating preference shares is also
entitled to participate in the surplus assets of the
company together with the ordinary shareholders.

18. CONVERTIBLE PREFERENCE SHARES
• These shares usually carry a right to a preferred,
fixed dividend for a particular term and then allow
for or require conversion to ordinary shares at the
end of the term.

19. VARIATION OF CLASS RIGHTS
Changing the rights attached to shares in a
class of shares
Abrogation of any rights attached to the
shares
Issuance of preference shares ranking in
parri passu.

20. WHAT AMOUNT TO VARIATION OF CLASS RIGHTS?
• In Re Northern Engineering Industries Pls [1994] 2 BCLC
704, the basic rule is “variation of class rights”= if there
are any changes or alteration to any existing rights as
stated in the articles of terms of issue of the shares.
• E.g. preference shares has the right to cumulative
dividend and the company proposes to cancel this rights.
• White v Bristol Aeroplane Co [1951] Ch 65 - A bonus
issue of shares to ordinary shareholders, that greatly
diluted the voting rights of preference shareholders, was
held not to amount to a variation of class rights attaching
to preference shareholders.
• But see Sec 91 (5)- issuance of new PS?

21. GREENHALGH v ARDENE CINEMAS
• The company had issued preference shares and ordinary
shares each carrying one vote.
• It then issued shares to Mr. Greenhalgh that carry with
him sufficient votes to block a special resolution.
• The other members proposed to the company to
subdivide their shares, greatly increasing the number of
votes they held.
• The effect was to diminish the proportions Mr.
Greenhalgh had.
• This was held not to be variation of class rights attaching
to Mr. Greenhalgh’s shares, because he still retain the
same voting rights.

22. SEC 91: PROCEDURES TO VARIATION
In accordance with the company’s constitution OR
With the consent of the shareholders in that
particular of class i.e. written consent of not less than
75% or special resolution.
Sec 92 : to vary- the company shall give notice within
14 days from the date of variation is made. Failure to
notify- penalty of RM500,000.

23. • Can the aggrieved members object?
– See Sec 93 CA 2016
• It is necessary to protect the rights of the holders of
particular class of shares against any attempt by other
classes to vary/change those rights.
• It is provided that holders of not less than 10% of the issued
shares of the class whose rights have been varied, may
within one month after the variation, apply to court to set
aside the variation.
• The court may make the order if it is satisfied that the
variation would unfairly prejudice the members of the class.

24. TRANSFER OF SHARES
• A person’s complete legal title to shares in a company
cannot be acquired without registration.
• The provisions for transfer of shares are contained in
Section 105 – 107
• Section 105(1) provides that a company shall not register
a transfer of shares unless proper instrument of transfer
in a prescribed form has been delivered to the company.
This provisions is mandatory.
• Instrument of transfer = includes written application for
transmission of a share, debenture or other interest to a
personal representative.

25. • When the necessary papers for transfer were in
order, the shares must be registered. See Section
106 CA 2016.
• For public listed companies there are no share
certificate where they operate through a scriptless
system and the shares’ ownership may be checked
at the Central Depositary System.

26. • The prescribed instrument of transfer can be found in
Form 32A.
• Form 32A requires that it be signed by both transferor and
transferee in the presence of a witness.
• Form 32A also provides that the consideration for the
transfer to be stated.
• In the case where the shares are jointly held by two or
more persons, for an instrument of transfer to be
effective, it must be signed by all of the joint holders. If
the signature of one or more of the joint holder is forged,
the transfer is void.

28. PROCEDURE ON TRANSFER OF SHARES (FULLY)
• Contract between transferor and transferee
• Transferor hands over Form 32A and share certificate to the
transferee
• Transferee lodged the two documents to the company
• The company registers name of the transferee in the register
of members
• New shares certificate issued
• Transferee becomes a new member of the company

29. RESTRICTIONS ON TRANSFER OF SHARES
• Private company must restrict the rights to transfer its shares
as mentioned in Section 42 (2) CA 2016.
• Normal restrictions found in the private company’s AOA or
constitutions
– pre-emption rights ;and
– discretionary rights.
• Pre-emption right is right of first refusal, where a member
who wishes to transfer their shares must first offer it to the
existing members who are willing to purchase the shares. If
there are no members willing to purchase the shares, then
transfer can be make to outsiders.

30. DISCRETIONARY RIGHTS
• The constitution may provide that directors may, in their
absolute and unfettered discretions, refuse to register a
transfer of shares – Section 106
• Where there is such discretion, it must be exercised bona
fide for the interest of the company as a whole.
• If the directors give reasons for the refusal, then the reasons
may be challenged for unreasonableness but issue always
arises when the directors do not provide reasons for refusal
to register a transfer of shares.

31. Re Smith & Fawcett
• The company had S & F as two shareholders holding equally
4001 shares each. Both are directors. One of them died and
the son of the deceased apply to the company to transfer
4001 shares of his father to him. The director, having
discretion said that 2000 shares must be transferred to
somebody else and the balance transferred to the son.
• The court held that the son was not able to proof that the
director did not exercise the discretion in bona fide for the
benefit of the company. The discretion stands.

32. PRINCIPLE:
• The directors can refuse to register a transfer
without giving any reason.
• The transferee can only compel registration if he
can show lack of bona fide.
• Court will presume that the directors exercised their
powers honestly, unless it appears otherwise on the
face of a document or in the confession of the
directors.

33. KESAR SINGH V SEPANG OMNIBUS [1954] 1 MLJ 122
• When the directors of a company are given by the
AOA absolute and uncontrolled discretion with
regard to registering a transfer of shares, the only
limitation on the director’s discretion is that it
should be exercised in bona fide for the interest of
the company.

34. FORGED TRANSFER
• A forged transfer is a total nullity and the true owner’s name
must be restored back to the register of members.
• The innocent purchaser who is without knowledge, in good
faith and has provided valuable consideration cannot acquire
better title than the defective title of person who commits
forgery.
• This is mention in Section 27 of Sale of Goods Act (SOGA)
where it uphold the common law principle of nemo dat.

35. Example:
A B C
X
(True
Owner)
Co.
Forged
Transfer Transfer
Compensation
Indemnity
Return Certificate
Sue

36. • In the above diagram, X is the true owner, his share
certificate has been stolen and A had forged X’s signature. A
transfer shares to B and B subsequently transfer shares to C
who is innocent purchaser, without knowledge and for
valuable consideration.
• In this situation, C must return the certificate to X. The
company shall compensate C for failing to stop the
transaction.
• B must then indemnify the company for the compensation
paid to C. B then can sue A in A’s personal capacity under
civil suit.

37. • The example given above is taken from the case of Re Bahia
and San Fransisco Rail Company.
• In that case, the court held that the true owner’s name must
be restored back to the register of members as a forged
transfer is a total nullity.
• The innocent purchaser’s name should be removed from the
register and the company is liable to pay damages because it
was estopped from denying that the person who forged the
signature is the true owner.
• Meanwhile, the company may demand indemnity from the
immediate purchaser who purchased the shares from the
person who forged the signature of the true owner.
• The immediate purchaser than may sue the person who
forged the signature of the true owner.
• Now this case has been codified into Section 103 CA 2016.

38. Thank You