COMPANY LAW 2.5 SHAREHOLDING AND MEMBERSHIP
SHAREHOLDING AND MEMBERSHIP.
A shareholder is one who holds shares in a company[1]. By owning shares, the shareholder becomes a member[2] of the company[3] and certain rights[4] are conferred therewith[5]
Shares are derived from the share capital which is divided into units of shares for subscription. Section 116 provides generally that each share carries one vote notwithstanding a contrary stipulation in the article-Webb V Earle, Will V United Lanket Plantations Co Ltd, Re Crichton’s Oil Company. There are exceptions in Section 143(1) upon certain resolutions.
What is a Share? Under the CAMA, a share is defined as “the interest in a company’s capital or income…”
Farwell J in Borland’s Trustee V Steel Brothers and Co ltd defined a share as “the interest of a shareholder in the company measured by a sum of money, for the purpose of liability… A share is not a sum of money… but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount.”
- A share is a unit of investment in a company.
- A share is not a sum of money.
- But it is an interest measured by a sum of money.
- It is measured by a sum of money for the purpose of liability.
- It is also measured by a sum of money for the purpose of interest.
- It confers rights of membership under the articles of association.
- It confers right of return of capital of a more or less amount.
These 7 statements encompass what Fawell J said in the case.
CLASSES OF SHARES. Section 118 AND 119 CAMA.
The companies are empowered to create two or more classes of shares with different rights attaching to each class provided that at least one shareholder of every company must be an ordinary shareholder-Andrews V Gas Meter Co.
The most common are:
– Ordinary/equity Shares: Is the primordial class of company’s shares. They carry the residual rights in the company. In the sense that their holders would be entitled to the residue/surplus of the dividend (and or repayments as the case may be) after the preference shareholders have been paid/settled. The elders who take the last drop. See Re Wharefedale Brewery Co[6]. See Section 144.
– Preference Shares: confers a preference on their holders. Their holders are entitled to dividend and return of capital before same is paid to the ordinary shareholders. The nature of preference shares and the rights attached to them is a question of construction of the memorandum and articles of terms of issue-Lord Simonds in Scottish Insurance Corporation Ltd V Wilsons and Clyde Coal Co. From Section 114 and 116 we can see that shareholders are entitled to attend meetings and vote. The argument therefore is that the preference shareholders are at an advantage since their rights are enhanced under the CAMA. Dimbulla Valley (Ceylon) Tea Co ltd V Laurie. White V Bristol Aeroplane Co Ltd. Redeemable preference shares Section 122 CAMA.
– Deferred/Founders Shares: usually rank next in priority to ordinary shares. Entitle the holder to profits after the ordinary and preference shareholders have been paid dividend.
VARIATION OF CLASS RIGHTS.
When the rights attached to a particular class of shares are sought to be modified.
Section 141 requires the written consent of holders of ¾ of the shares of that class or an extraordinary resolution passed at a separate meeting of that class.
Consent of the court should be sought in accordance with Section 312(4) CAMA.
Holders of not less than 15 percent of the shares who did not consent may apply to the FHC within 21 days (after the consent resolution) to have the variation cancelled. Such petition may be victorious if the alteration is tainted with fraud or unfairly prejudices the minority.
Rights are better protected if they are in the memorandum since the memorandum is superior to the Articles and variation of class rights would also translate to alteration of the memo. See Section 141.
If the Class rights are set out in the Articles, then a special resolution altering the articles would be needed-Section 48 CAMA. Note that if it is just a minor adjustment and the legal nature of the rights remain the same, it is better called an alteration rather than a variation-Greenhalgh V Ardene Cinemas Ltd, White V Bristol Aeroplane Co Ltd, Newspapers Group Ltd V Cumberland and Westmoreland Herald Newspapers and Printing Co. Ltd.
ACHIEVING MEMBERSHIP.
From the interpretation of Section 79 CAMA, one may become a member through the following:
- By subscribing to the memorandum of association when the company is being incorporated: Nichol’s Case. In Evans’s Case [1867] 2 Ch. App. 42, Mr A had subscribed to the Memorandum. As a holder of 10 shares. No shares were ever allotted to him nor was his name entered into the register of members. The court held that his name ought to have been put in the register of members. See also Orji V Dorji Textile Mills.
- Other Methods: Note that every person under this category must have his/her name entered in the register of members to qualify.
- By agreeing to take shares in the company-Sparks Electric Ltd and Anr V Ponmile, Berliet Nigeria Limited V Mordi Francis.
- By taking a transfer of shares.
- By inheriting shares of a deceased shareholder-Section 155. On death, the shares of a member passes to his heirs, executors or administrator.
- By holding or allowing himself to be held out as a member-Crawley’s Case.
- Buying shares in the company-Orji V Dorji Textile Mills Ltd, Oilfield Supply Centre Ltd V Johnson.
An infant can become a member but he can repudiate the contract within a reasonable time of attaining majority[7]. A company can become a member of another company where authorised by its memorandum. It shall be represented at meetings by an officer appointed by resolution of board of Directors-Section 231(1a).
How to get/apply for shares: First, an offer[8] (which may be oral or written[9]) is made. The company may accept (by allotment of shares) or reject (by notifying you).
[1] Note that a co limited by guarantee cannot have shares.
[2] A member is defined in CAMA as;
[3] A shareholder though part of the company does not own the company’s assets.
[4] Like right to attend general meeting and vote.
[5] See Section 114
[6] Where it was held that this right was enjoyed to the exclusion of preference shareholders See also Scottish Insurance Corporation Ltd V Wilsons and Clyde Coal Co. Although an opposite stance was taken in Re Wood Skinner and Co Ltd.
[7] Although the court may sometimes require the applicant to show total failure of consideration-Steinberg V Scala (Leeds) Ltd.
[8] In the case of public companies, the offer should generally be accompanied by a prospectus-Section 71(1) ISA.
[9] Berliet Nigeria Limited V MordiFrancis.
