Share Capital and Shares

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SHARE CAPITAL

 

Share capital refers to the amount of capital raised (or to be raised) by a company through the issue of shares in return for cash or ther consideration. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares.

The main features of share capital are :-

  1. Share capital can be raised only by companies limited by shares and registered with share capital.
  2. Share capital can be raised by a company either at the time of its formation for starting its operation or later on for further expansion.
  3. Share capital, one raised, cannot be returned by the company to the shareholders as long as it continues to exist, except in the case of redeemable preferance share. It can be returned only at the time of winding up of the company.

 

Types of Share Capital

 

Authorised capital is the sum stated in the capital clause of the memorandum of association as the capital of a company. It is the maximum amount of share capital, which the company is authorized by its memorandum of assosication to raise through the issue of shares. It is called authorized capital, because it is the capital, which a   company is authorized to raise from the public. It is calle dregistered capital, because it is the capital with which a company registered. It is also called nominal capital, because it is not the real or actual capital of a company. A company has this capital only in name. Further, it is the total nominal value of the shares. which a compny can Issue.
There is no guarantee that all the subscribers pay the full amount called up or demanded from them. In fact, in many cases, some of the subsribers do not pay the full amount called up from them. That means, often, only a part of the called-up capital may be paid by the subscribers or shareholders. That part of the called-up capital, which has been actually paid, by the subscribers or shareholders is called paid-up capital.
A company, usually, does not need the whole of the authorized capital in the beginning. It needs only a part of the authorized capital. So, in the beginning, it, usually, issues only a part of the authorized capital to the public for sbuscription. That part of the authorized capital to the public for subscription. The part of the authorized capital which is issued or offered, for the time, being, to the public for subcription is, usually, called the issued capital.
There is no guarantee that the entire capital issued by a company to the public for subcription will be subscribed or taken up by the public. The public may subscribe in full or in part. That part of the issued capital, which is subscribed or taken up by the public, is called subscirbed capital.
Generally, a company does not need the entire face value of the shares subscribed by the public immediately. So, it calls or demands only a part of the nominal value of the shares subscribed or taken up by the public immediately and collects the balance later, as and when necessar, by making further calls. That part of the subscribed capital, which has been called up or demanded by the company is called called-up capital.Generally, a company does not need the entire face value of the shares subscribed by the public immediately. So, it calls or demands only a part of the nominal value of the shares subscribed or taken up by the public immediately and collects the balance later, as and when necessar, by making further calls. That part of the subscribed capital, which has been called up or demanded by the company is called called-up capital.

 

Shares

 

A share refers to a fractional part of the capital of a company which forms the basis of certain rights of a member of the company as well as his liabilities. It is a unit of ownership that represents an equal proportion of a company's capital. It entitles its holder (the shareholder) to an equal claim on the company's profits and an equal obligation for the company's debts and losses.

The main features of share capital are :-

  1. A share is not a sum of money. It is only an interest or right, measured in a sum of money, to participate in the profits of the company during its life and in the assets of the company when it is wound up.
  2. A share is given a face or nominal value, and is paid for in money or money's worth.
  3. The person who holds the share or shaes of a company is called a shareholder or member of the company.
  4. The title of a member to a sharp is evdenced by the share certificate issued by the company under its Common seal.
  5. Each share in a company having share capital is distinguished by its specific or appropriate number.

 

Types of Share

 

1. Ordinary Shares 

Any shares that are not preferred shares and do not have any predetermined dividend amounts. An ordinary share represents equity ownership in a company and entitles the owner to a vote in matters put before shareholders in proportion to their percentage ownership in the company. Ordinary shares, also called common stock, are shares of stock that entitle the holders to periodic dividends disbursed at the company's discretion if any are availableafter dividens on preferred shares are paid. They are also entitled to their share of the residual economic value of the company should the business unwind; however, holders of ordinary shares take a lower priority on the asset liquidation spectrum to the company's lenders and preferred shareholders. Holders of ordinary shares are compensated after both these groups have been fully-compensated. As such, ordinary shareholders are considered as unsecured creditors. Ordinary shares are also referred to as "common stock".

2. Preference Shares

Preference shares are shares, which have preferential rights (i.e., first priority or preference over other kinds of shares) in respect of paymnet of dividend during the existence of the company, and also in respect of repayment or refund of share capital in the event of the winding up of the company. Preference shares are offered preference in relation to ordinary shares, where the preference shareholder receives dividends before ordinary shareholders are paid out. Preference shareholders are paid a fixed dividend and have the first claim on the assets and earnings. As such, preference shareholders receive their share of the firm's residual value before ordinary shareholders in the event of liquidation. Preference shareholders do not have voting rights.

There are few types of preference shares :-

The holders of this type of shares are entitled to receive a fixed percentage of dividends before anything is given to other classes of shareholders. Dividend is accumulated if the company does not earn sufficient profit to pay the dividend. If the dividend is not paid in one year it will carried forward to successive years.
Also entitled to receive a fixed percentage of dividends in the first instance. But, if the company is unable to the dividend on preference shares because of insufficient profits, the dividend is not accumulated and become payable out of future profits.
In addition to a fixed percentage of dividends, the holders of this type of share are also entitiled to participate in the surplus profits of the company. Only if there is a specific or special provision in the articles of association of the company giving the holders of these shares special rights to participate in the surplus profits. They are also entitled to participate in surplus assets of the company on its winding up.
The holders of non-participating preference shares will get only a fixed rate of dividend in the first instance, but they are not entitled to participate in the surplus profits of the company.
Apart from earning fixed dividend, the holders of convertible preference shares are given the rights to convert their shares into ordinary shaers later on based on specified terms.
The holders of non-convertible prefernce share are not given the right to convert their shares into equity shares later on.
Redeemable preference shaers are those preference shares, which can be redeemed, either returned or paid back even during the existence of th company. These shares can be redeemed as per the terms of issue either at a definite date after the expiry of a stipulated (fixed) period or at the option of the company, whenever the company wants, after figing proper notice. Redeemable preference shares can be redeemed by a company but subject to the conditions as stipulated and agreed by the company and shareholders.
Irredeemable preference shares are those preference shares, which are not refundable until the company is wound up.

 

 

 


COMPARISON BETWEEN ORDINARY SHARES AND PREFERENCE SHARES

 

ORDINARY SHARES

  • Also knwon as "common stock", represents the original capital paid into or invested in the business by its founders. An ordinary share defines a single unit of equity ownership of a corporation
  • Ordinary shareholders are entitle to dvidends as well as residual economic value should the company unwind. They are in a riskier position than preference shareholders since they are hte last to receive their share in the event of liquidation (after bondholders and prference shareholders are paid)
  • Ordinary shareholders dividend can be higher than preference shareholders' as it is not at fixed rate or percentage.
  • The holders have the right to vote at General Meeting (AGM & EGM) and they have the ability to elect or terminate Board of Directors of a company.
     

 

 

ISSUE OF SHARES

 

 

When shares are issued by a company to the public at a price equal to thier value or the price written on the share certificates, they are said to be issued at par value. For example, if shares of the face value of RM1.00 each are issued by a company to the public at RM1.00 each, the shaes are said to be issued at par value.
When a company finds at there is a great demand for its shares, it may issue shares at a premium. Issue of shares at a premium means the issue of shares by a company at a premium. Issue of shares at a premium means the issue of shares by a company at a price higher than the par value of the shares. The difference between the issued price, (the price at which the shares are issue) and the par value of the shares is called share premium. For example, when shaers of the par value of RM1.00 each are issued at a price of RM2.00 per share, the shares are said to be issued at a premium.
When a company wants to raise further capital at a time when its shares are not demanded, and so, quoted in the market below par, it may issue shares at a discount. Issue of shares at a discount menas the issue of shares at a price less than the par value of the shares. The differences between the par value and the issue price of th shares are the discount allowed on the shares. The discount allowed is a capital loss to the company. For instance, when shares of the par value of RM2.00 each are issued at RM1.00 each, the shares are said to issued at a discount.
If public company issues additional or further shares at any time after the expiry of two years of its formation or one year after the first allotment of shares, whichever is earlier, such additional shares must be offered to the existing equity shareholders of the company in proportion to the capital paid up on their shares, such shares are called rights shares. Such shares are called rights shares, as the existing equity shareholders are given preferential rights (i.e., first preference) in the allotment of such shares. The right of existing equity shareholders to be offered new shares before they are offered to the public is called shareholders' right of pre-emption.
Bonus shares are shares issued by a company out of its accumalated reserves or profits to the existing equity share holders either as fully paid shares or partly paid shares free of cost.

 

SHARE CERTIFICATES

 

A share certificate is a document issued by a company under its common seal specifying the number of shares held by a member and the amount paid on each share an dvidencing the title of the member to thoese shares. It it a prima facie evidence of the title of a member of the shares specified therein.

 

Content of a Share Certificate :-

A share certificate must contain the name and the registered office of the company. It must bear the common seal of the company. It must contain the signatures of at least two directors who are authorized to sign and also the counter signature of the secretary of the company. 

In addition to the above, it must contain the following particulars:

  1. Name and address of the member
  2. Share certificate no.
  3. Number and class of shares.
  4. Distinctive numbers of the shares included in the certificate. 
  5. Face value of the amount paid on each share.
  6. Date of issue of the share certificate.
  7. A revenue stamp.

 

TRANSFER OF SHARES

 

 When a registered shareholders passed on the property or interest in his shares by sale or otherwise (say) by gift) to another person vountarily) there is said to be transfer of shares. So, transfer of shares refers to the passing on of the property or interest in the shares by a registered shareholder to some other person voluntarily for a valuable consideration.

 

Transmission of Shares

 

 

Transmission of shares refers to the passing of property in shares by the operation of law, and not by sale by the original owner, on the happening such events as death, insolvency or lunacy of a shareholder, to his legal representative.

 

COMPARISON BETWEEN TRANSFER OF SHARES AND TRANSMISSION OF SHARES

 

TRANSFER OF SHARES

  • Result from a voluntary and deliverate act of the holder of the shares.
  • Common method of passing of property in the shares from one shareholder to another.
     
  • There must be adequate and valid consideration for the transfer of shares as the transfer is a voluntary act between both parties, transferor and transferee.
  • The transfer take place for valid consideration, an amount of Stamp Duty is payable to related government body. The stamp duty is payable on the market value of the shares transferred.
  • An instrument of transfer is required in favour of the transferee.
     
     
     
  • As soon as the transfer is completed, the liability of the transferor ceases completely.
     

 

 

 

OTHER TERMS IN RELATION OF SHARES

 

Forfeiture of Shares

 
Forfeiture of shares means the confiscation or taking away of the shares of a shareholder by way of penalty for the non-repayment of any call made on him, and compulsory termination of his membership.

Surrender of Shares

 
Surrender of shares means the return (i.e., giving back) of shares by a shareholder to the company voluntarily for cancellation. It is a shortcut to the long and cumbersome procedure of forfeiture of shares.

Lien on Shares

 
Lien is the right of a person to retain the property of another person in respect of any lawful debt due from the latter to the former. So, lien on shares is the right of a company to retain the shares and vene the dividens payable thereon belonging to a shareholder in respect of the outstanding call amount or any other debt (except trade debt) due from the shareholder to the company.

Blank Transfer

 
When an instrument of transfer duly completed and signed by the tranferor, but the name, address and signature of the transferee left blank, is delivered by the transferor to the transferee along with the relevant share certificate, there is said to be a blank transfer. A blank transfer is so called, because the name, address and signature of the transferee are left blank in the transfer form.


Forged Transfer

 

An instrument of transfer which is not signed by the true owner of shares, but is signed by some other person as the true owner is called a forged transfer. In other words, an instrument of transfer which contains the forged signature of the transferor is called a forged transfer.

Certificate of Transfer

 

When a shareholder wants to transfer only a part of the shares represented by one share certificate or wants to transfer the shares represented by one share certificate or wants to transfer the shares represented by one share certificate to two or more buyers, he, generally, executes a transfer form [where only a part of the shares are transferred to one buyer] or two or more transfer forms [where the shares are transferred to two or more buyers] and sends the transfer form or forms to the company along with the original share certificate for certification. After a reliminary scrutiny of the transfer form or forms and the share certificate, if the secretary is satisfied that everything is in order, he affixes the rubber stamp called "Certification Stamp" and puts his signature. This process is known as Certificate of transfer, and the instrument of transfer is known as "certified transfer" or "certified transfer form".

http://www.ssm.com.my
http://www.treasury.gov.my
http://www.gov.my
http://www.hasil.gov.my
http://www.maicsa.org.my/

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