CompanyLawHandout3

AY201415,Term1


1
SINGAPOREMANAGEMENTUNIVERSITY

COMPANYLAWLGST201

Handout3Shares

Reading
Yeo,Chapters16and17(topara17.240)
Woon,Chapter11;
Koh,Chapter3(pp4668)

Introduction

You will have noticed by now that this course largely focuses on companies which are
limitedbyshares.Theshareisthereforeafoundationalconcept.Aswehavelearntin
Seminar 1, a shareholder does not own the property or assets of a company, the
company (as a separate entity) owns them in its own right. Thus, the shareholders
interestscanonlybereflectedthroughthesharesheld.Inthisseminar,theaimisto
understand the legal nature of shares. In so doing, we will (obviously) also gain an
understandingoftherightsandobligationsofshareholders.

MeaningofCapital

The word capital has many shades of meaning. In the commercial context, we
often refer to capital as the money with which we use to start a business. If you
borrowasumofmoneyfromthebank,theprincipalamountoftheloan(excluding
interest)isthecapital.Forpurposesofaccounting,capitalhasanotherspecialised
meaning.Inthisseminar,weshallbelookingonlyatsharecapital(orequity),i.e.
the amount of money which the shareholders contributed to the companys
resourcesinexchangeforsharesinthecompany.

Issuesrelatedtodebtcapitalwillbediscussedinafewweeks.

CompanyLawHandout3
AY201415,Term1


2

1. SharesDefinition&RelatedConcepts

Definition&Nature

Broadlyspeaking,asharerepresentsaninterestinacompanywhichconfers
rightsandimposesliabilitiesontheholder.

CA s 121 states that a share is a form of movable property, not immovable

property.Itisalsoaformofintangibleproperty.

Depending on whether the shares have been paid when they are issued,
sharescouldbeclassifiedinthefollowingcategories:
Fullypaidupshares;
Partlypaidupshares;
Whatisuncalledcapital?
Whendoesapartlypaidsharebecomefullypaid?

MemberandShareholder

While we largely use the terms shareholder and member as if they are
interchangeable, the two terms are technically not identical. On the one
hand, only those companies with share capital have shareholders. On the
other,notallshareholdersareactuallymembers.

Technically, members refers to persons who are actually registered in the

companysRegisterofmembersasmembersofthecompany.ConsiderCAs
19(6)carefully.

For convenience, you are allowed to use shareholder and member

interchangeablyaswewillfocusoncompanieslimitedbysharesthroughout
the course. However, you should bear in mind the technical differences
between member and shareholder especially when the provisions of the
CompaniesActreferspecificallytothetermmember(e.g.inCAs216).

Shareholdersintheoverallcorporatestructure

CompanyLawHandout3
AY201415,Term1


3
As discussed in Week 1, there are many persons who are interested in the
companysbusiness.Shareholders/membersrepresentonegroup.Compared
withothergroups,shareholders,asagroup,havesomespecialfeatures:
o Shareholders are often called residual claimants in economic terms
becausetheyarethelastinthelinetoclaimfromthecompanysassetsif
itgoesbust.
o However, shareholders are entitled to participate on the terms of the
M&Awhilethecompanyisagoingconcern.
o Shareholdersareobligedtocontributeuptotheissuepriceoftheshare.

MembersRights

Membersusuallyhavethefollowingrights:
righttoobservanceofM&A
righttorestraincompanyfromultraviresacts
righttoaccessinformationandrecords
righttobetreatedfairly
righttoattendmeeting
righttovote

Withregardtovotingrights:
Forapubliccompany,CAs64(1)and(5)entrenchestheoneshareone
voteprinciple.
o TheCompanies(Amendment)Bill2013proposestofurtherliberalise
the way a public company can design capital and voting structure
under some conditions. See Companies (Amendment) Bill 2013 s 39
(revisingCAs64andaddinganews64A).
Private companies may issue different classes of shares with multiple,
limitedornovotingrights.Thisistooptimiseflexibility.
o Doesamemberoweanydutytothecompanywhenexercisinghisvote?
o However, itdoes notmeanthatthereisnootherlimitation ontheright
tovote.E.g.
o Bonafideintheinterestsofthecompany(foramendmentofM&A)
o CAs216(remedyforoppression)

Think: Although a member has a right to access to corporate information,

doesitmeanthatamembercanaskforeveryinformationaboutacompany?

2. ShareCapitalStructure
CompanyLawHandout3
AY201415,Term1


4

Oldlaw

Thisisanareawhichhasjustexperiencedsignificantreform.Priorto30Jan2006,
thesharecapitalofacompanywouldtypicallyconsistof
(a) authorisedsharecapital;
(b) issuedsharecapital;
(c) paidupcapital;and
(d) sharepremium(ifapplicable).

Can you think of some reasons why the par value used to be thought to be
important?

CurrentLaw

However,theconceptsofauthorisedcapitalandparornominalvaluehavebeen
abolishedwitheffectfrom30Jan2006.

RationaleforAbolitionofParValueandAuthorisedCapital

ThefollowingisextractedfromthefinalreportoftheCompanyLawReform
andFrameworkCommittee(Oct2002):

3.1.1 The concept of par value has historically served to define the
interests of shareholders and creditors. It is the permanent capital invested
in the company by shareholders and describes the irreducible minimum of
the company assets that could not be used to pay dividends or otherwise
paid out to shareholders without court approval, before satisfaction of
creditors.

3.1.2 Wereviewedtheconceptofparvalueanditsrelevanceintodays
business environment. We also considered whether the concept of
authorised capital continues to serve any useful purpose. In analysing a
companys capital structure, a more meaningful measure is the total
consideration paid for or payable on the shares, which would include the
nominalvalueandthesharepremium.Therulethatsharescannotbeissued
atadiscounttoparvalueoperatestopreventacompanyfromraisingfresh
funds where the market value of its shares has fallen below par value. A
share is more meaningfully to be viewed as a proportionate interest in the
networthofacompanyandparvalueobscuresthisreality.

CompanyLawHandout3
AY201415,Term1


5
3.1.3 Australia has since 1998 and New Zealand has since 1993
abandonedtheparvalueandauthorisedcapitalconcepts.Canadianlawdoes
not have the concept of authorised capital. The UK Steering Committee has
proposedtoretainparvaluesharesasitisconstrainedtodobyreasonofthe
2
nd
EUCompanyLawDirective.

3.1.4 We recommend the removal of the concepts of par value and

authorised capital as these have become meaningless and are often the
source of confusion in measuring the value of the securities. It is also
confusing to have an artificial divide between the share premium account
and paidup capital since both accounts are subject to the same capital
maintenancerules.TherecommendationwouldgiveSingaporeincorporated
companiesgreaterflexibilitytoraiseandmaintaincapital.Itwouldalsogive
companies wider choices to structure their capital and debt capital in
responsetotheirneedsprovidedthatthereisfulldisclosure.

3.1.5 The removal of the concepts of par value and authorised capital
would not affect a companys shareholders fund. The shareholders fund
comprisesthecompany'saccumulatedprofitstodate,itspaidupcapitaland
itssharepremiumamount.Itistheamountofmoneythatshareholdersare
entitledtoifthecompanyiswoundup.

Asaresultofthereform,CAs62A(1)nowstates:

Sharesofacompanyhavenoparornominalvalue.

Youshouldbeawarethatinsomeothercountriestheconceptsofparvalue
and authorised capital are still applicable. Thus, when you deal with a
foreign company, you should keep in mind the potential effect of these
conceptsunderthelawsofthecountrywherethecompanyisregistered.

Consequencesofremovalofauthorisedcapitalandparvalue:
Focusisontotalconsiderationpaidforshares
Noconceptofpremium
Noconceptofdiscount
Changeappliestoallshareswhichareinexistence.

Practice:
As at 29 Jan 2006, a companys capital structure is shown in Column A below.
CompleteColumnBtoreflectthelegalreformthattookeffectfrom30Jan2006.
CompanyLawHandout3
AY201415,Term1


6

(A)29/01/2006 (B)30/01/2006
Authorisedcapital $100,000
ParValue $1.00
Noofsharesissued 50,000
Pricepershare $2.00
Issuedcapital $50,000
Paidupcapital $50,000
Premiumpershare $1.00

Youmaywishtorefertothefollowingsectionswhencompletingtheabovetable:

62B.(1)ForthepurposeoftheoperationofthisActonoraftertheappointed
dayinrelationtoashareissuedbeforethatday
(a) the amount paid on the share shall be the sum of all amounts paid to the
companyatanytimefortheshare(butnotincludinganypremium);and
(b)theamountunpaidontheshareshallbethedifferencebetweenthepriceof
issue of the share (butnot including any premium) and the amount paid on
theshare.
(2) On the appointed day, any amount standing to the credit of a companys
share premium account and any amount standing to the credit of a companys
capitalredemptionreserveshallbecomepartofthecompanyssharecapital.

Alterationofsharecapital

Aftertheabolitionofparvalueandauthorizedcapital,oneremainingissueis
theinterpretationofArt40ofTableAandsection161.Theissueiswhether
increase the share capital by such sum as the resolution shall prescribe
refers only to the authorized capital. Consider Lian Hwee Choo Phebe v
Maxz Universal Development Group Pte Ltd [2008] 4 SLR(R) 265; Walter
Woon,at11.3011.33.

3. ClassesofShares

CompanyLawHandout3
AY201415,Term1


7

(b) OrdinaryandPreferenceShares

Can you think of some reasons why it is useful to have different classes of
shares?

The term ordinary shares is rarely defined. It may be understood as a

residualclassofshares.Usually,itisexplainedbycontrastwithpreference
shares(orcalledpreferredsharesorspecialsharesinsomeplaces).

Preference shares usually carry some forms of preferential rights relating to

oneormoreofthefollowingitems:
Fixedorpreferentialdividends
Priorityinreturnofcapitalintheeventofcompanyswindingup
Right to be converted to ordinary shares upon satisfaction of certain
conditions
Explain the differences between: (1) Cumulative or noncumulative
preference shares; (2) Participating or nonparticipating preference
shares;(3)Votingornonvotingpreferenceshares;(4)convertibleshare;
(5)Goldenshare;(6)treasuryshare(CAs76HCA);(6)redeemableshare.

A nonexhaustive definition of preference share is found in CA s 4(1) (see

below).Canyouexplainwhythisisalimiteddefinitionwhichdoesnothave
generalapplication?

"preferenceshare",inrelationtosections5,64and180,meansashare,
by whatever name called, which does not entitle the holder thereof to
the right to vote at a general meeting (except in the circumstances
Classes of Shares
Ordinary
Preference

Voting/non-voting
Cumulative/non-
cumulative
Participating/non-
participating
Convertible
Redeemable
Golden

Treasury
CompanyLawHandout3
AY201415,Term1


8
specifiedinsection180(2)(a),(b)and(c))ortoanyrighttoparticipate
beyond a specified amount in any distribution whether by way of
dividend,oronredemption,inawindingup,orotherwise;

Be mindful that the Companies (Amendment) Bill 2013 proposes to delete

thedefinitionofpreferenceshareinCAs4.

Whereshouldtherightsofpreferencesharesbestated?Isthisamandatory
orANoptionalrequirement?SeeCAs75(1).

Wherethereisnoexpressdistinctionbetweentherightsofdifferentclasses,
thelawpresumesthatallshareholdersrankequally.

(c) NewDirection
Oneofthemajorchangesproposedinthisroundofcompanylawreformis
toliberalisethe share capitalstructure. Whilenew statutory wordings have
not been finalised yet, it is important to take note of key points of the
proposedreformthatwillappearinnewCAs64and64A:
1. Private companies will enjoy a lot of freedom to design its shareholding
structure, including having shares with multiple votes or shares without
anyvotingright.
2. Public companies may issue shares with multiple, special, limited or no
votingrightsonlytheconstitutionallowsandspecifiesrelevantterm,and
theissuanceofsuchshareshasbeenapprovedbyaspecialresolutionin
thegeneralmeeting.

(d) VariationofClassRights

ProceduralIssues

Whenpreferencesharesareissuedalongsideordinaryshares,theremaybe
problemswithregardtovariationofclassrights.Inparticular,problemsmay
ariseifthemajorityofshareholderspassaresolutiontochangetherightsof
minority (or voteless) preference shareholders. This raises the question
whether and to what extent a company should be permitted to amend the
rights attached to a particular class of shares? The answer to this question
maydependonwhetherthereisamodificationofclassrightsclauseinthe
constitution.

CompanyLawHandout3
AY201415,Term1


9
If there is no modification of class rights clause, the company may vary
class rights by simply amending the provisions relating to class rights in the
constitution.

IfthecompanysconstitutioncontainsamodificationofclassrightscIause,
then the modification will only be valid if it complies with this clause. An
exampleofsuchaclausecanbefoundinArticle4ofTableA.

What purpose does a modification of class rights clause serve? Whose

interestsdoesitprotect?

Since the modification of class rights clause is always contained in the

Articles of Association, any attempt to alter that clause will invariably
involveanamendmentofarticles.Itisthereforeimportanttorecallthe
restrictionsonalterationofArticlesthatwediscussedlastweek.

Isthemodificationofclassrightclauseanentrenchingprovisionwithin
themeaningofCAs26A?

Iftheclauserequiresaclassmeetingtobeheldtoapprovetheproposed
modification,inwhatwayistheshareholdersrighttovotelimited?
ReHoldersInvestmentTrust[1971]2AllER289.

Suppose a class meeting is held in compliance with the requirements of a

modification of class rights clause, and the modification is approved by the
requisite majority of the class. What other legal redress may an aggrieved
minorityshareholderwhohasbeenoutvotedbythemajorityseek?Consider
CAs74.Asthisisarathercomplicatedprovision,pleasestudyitclosely.

MeaningofVariationofClassRights?

Anotherproblemregardingthevariationofclassrightsiswhatamountstoa
variation of class rights. So far, the discussion has proceeded on the
assumptionthataproposedvariationofclassrightscanbeeasilyidentified.
Butthisisnotalwaysso.

Consider if there is a variation of class right in each of the following cases?

You may make reference to decisions such as White v Bristol Aeroplane Co
[1953]1AllER40,GreenhalghvArderneCinemas[1946]1AllER512inyour
analysis.

CompanyLawHandout3
AY201415,Term1


10
1. Acompany has ordinarysharesandClassApreferenceshareswhich carry
votingrightsandafixedcumulativedividendof8%pershare.Thecompany
passed a special resolution to authorise the issue of Class B preference
shareswithvotingrightsandafixedcumulativedividendof15%pershare.

2. A company has Class A ordinary shares of $10 each and Class B ordinary
sharesof$2each.Eachshareinbothclassesentitledtheholderto1vote.
AresolutionwaspassedtosubdivideeachClassAshareinto5sharesof$2
each.

3. ThearticlesofacompanyprovidedthatP(ashareholder)haspreemptive
rights over the other ordinary shares not held by him, had rights over
unissued shares and had the right to appoint a director for as long as he
held more than 10% of the companys shareholding. A special resolution
waspassedtoamendthearticlestoremovePsrightofpreemption.

Keepinmind:
Therightsofaclassarenotalteredbyachangeinthecompanyscapital
structurewhichmerelyaffectstheenjoymentofthoserights.
Arightorbenefitmayconstituteaclassrightevenifitisnotreferableto
any particular share provided that it is conferred on the member in
his/her capacity as a member, Cumbrian Newspapers Group v
Cumberland&Westmorland(1987),butnotonsomeothermembers.

4. IssueandAllotmentofShares

(a) There are twoways in whicha personmayacquireshares ina company:either

through (i) the companys issue & allotment; or (ii) transfer of shares. In what
waysarethesetwotypesofacquisitionsdifferent?

Consider what constitutes an issue or allotment of new shares in the following

circumstances:
Oneofthecompanysshareholderssellshissharestoanunrelatedthird
partyintheopenmarket;
The company purchases from the market some of its shares and keeps
themastreasuryshares;
Thecompanyresellsthetreasurysharestothemarket;
The company issues new shares to the general public pursuant to the
SecuritiesandFuturesAct(Cap289);
CompanyLawHandout3
AY201415,Term1


11
Thecompanyissuesallofthenewsharestoaninvestmentbankasaway
toincreaseitscapital;
Thecompanyissuesallofthenewsharestoitsexistingshareholders(the
shareholderhastopayfortheshares);
Thecompanyissuesnewsshares,whicharedepositedwithHSBCTrustee
ServicesLtdinSingaporetoactasthecustodianoftheshares,whichare
issuedforthepurposeoftheCompanyissuingsomedepositaryreceipts
listedintheNewYorkStockExchange.
The Company uses part of its annual profits to issue shares to existing
shareholdersasbonuses.

(b) ProceduralRequirement

In general, the power to issue and allot shares is vested in the company (ie.
shareholders).Inpractice,however,suchissueandallotmentareusuallydecided
by the board of directors acting with the priorapproval of the company. This is
becausetheCompaniesActspecificallyprovidesthatthedirectorsofacompany
maynotissuenewsharesunlesssuchissuehasbeenapprovedbythecompany
in generalmeeting, seeCA s 161(1). However, CA ss 161(2) &(3) alsomakesit
clear that general approval may be given for each year. If that occurs, it is not
necessaryforshareholdersapprovalforrecurringissueswithinthatyear.

You should be aware that the legal effect of issuing new shares without prior
approvalisprettyharshasinCAs161(6)and(7).SeeJimatbinAwangvLaiWee
Ngen[1995]3SLR(R)496(SCA).

In addition, the Articles may require that there must be a resolution passed by
theBoardofDirectorsbeforeissuingnewshares.E.g.Art2ofTableA.

Withtheapprovalofthegeneralmeetingandtheboard,thecompanymaythen
issuenewshares.Anewshareholdersubscribestothenewsharesandpaysup
(orpromisestopayup)incashorforconsiderationotherthancash(seebelow),
beforethesharesareactuallybeingallottedtohim.

Tocompletetheprocess,thecompanymustenterthename(s)ofholderofthe
newsharesintheregistryofmembersandissuessharescertificates.

(c) ConsiderationforPurchaseofShares

Consideration for purchase of shares from the company may take the form of
eithercashornoncashconsideration.Inthecaseofthelatter,however,there
isgenerallynorequirementthatsuchconsiderationbeadequate,seeReWragg
CompanyLawHandout3
AY201415,Term1


12
Ltd[1897]1Ch796.What,doyouthinkistherationaleforthisposition?What
are the related risks? We will revisit this issue when we consider the topic of
capital(orcreditor)protection.

(d) ShareCertificates

What are share certificates? Are share certificates equivalent to shares?

Whatpurposedotheyserve?

Since shares are the creation of statues and the companys constitutional
documents, they must be presented in certain forms. Traditionally, shares
areprintedinpapersothateachshareisrepresentedinasharecertificate.
The name of the shareholder might have to be stated in the certificate.
However,likechequesoranyformofcertificates,thereisalwaysadangerof
mistakeinthecertificate.Thus,thelawhastodealwithsituationwherethe
certificatedoesnotrepresentthetrueownershipofshares.Theconceptof
share certificate estoppel thus arises. Please consult section 129 of the
CompaniesAct.

Enteringintotheelectronicera,thedematerialisationofsharecertificatesis
the fashion to facilitate trading and transfer, especially in the case of listed
shares in a stock exchange. In this situation, shares are deposited in a
depository institution without printing and issuing certificates to a member.
Thus, the Companies Act has to deal with the intervention of the Central
DepositorySystemrunbytheCentralDepository(Pte)Ltd(CDP)inrelation
to share transfer and registration of members. Please see CA s 130A130P.
Toreflectthetrueownership,theCompaniesActclarifiesthatthedepositor
(i.e. shareholder) but the CDP (whose name is registered in the companys
registry)isdeemedtobethememberofthecompany.

5. Interestinshares

(a) Ownership:Legalandbeneficialinterests

Asmentioned,sharesareatypeofproperty.Assuch,whenweconsiderthe
questionsrelatingtoownershipofshares,wehavetounderstandandapply
somerulesthatrelatetopropertygenerally.

A basic starting point is to distinguish between legal and beneficial (also

knownasequitable)ownership.Legalinterestrelatestotheformalinterest
CompanyLawHandout3
AY201415,Term1


13
ortitleoftheproperty,whilebeneficialinterestrelatestotheactualbenefit
oftheproperty.

The idea of separating legal title from beneficial ownership comes from the
concept of trust. For example, Y owns some shares of DBS. He may then
createatrustbyappointingZtobethetrustee.Todothis,Yhastotransfer
the legal title of the shares to Z. However, because Y is still the ultimate
owner of the shares (ie, the trust asset), Y is regarded as the beneficial or
equitable owner of the shares. In this situation, Z (as the trustee) holds the
legaltitle,butYretainstheequitableinterestintheshares.

A person may own both legal and equitable interests of a share, or he may
own either legal or beneficial interests of a share. For example, if Ms X
decidestopurchase100sharesinCoY,butshedoessoindirectlythrougha
nominee, then the nominee will be the legal owner, while Ms X is the
beneficialownerofthoseshares.

We can relate this discussion to the differences between member and

shareholder. In our example above, Ms X will not be a member of the
company (because the nominees name will be reflected in the companys
RegisterofMembersinstead)butMsXwillinfactbeashareholder(broadly
understoodassomeonewhoownsshares)ofthecompany.

Does the company have the responsibility of ascertaining whether a

registered member (legal owner) is also a beneficial owner of the shares he
owns?SeeCAs195(4).

(b) Interestinshares

WhentheCompanies Act refersto personswhoowna share,it doesnotjust

refertothosewhoowntheentirebenefitofthatshare.Itoftenincludespersons
who have some form of partial interest in the share. To appreciate this, you
shouldreadsection7verycarefully.Thiswillmatterinrelationtoissuessuchas
a directors duty of disclosure (CA s 165), register of directors shareholding (s
164),orloanstopersonsconnectedtoadirector(CAs163),etc.

For example, if X contract to buy Ys shares at some future date, X will be

regarded as having an interest in those shares even though X have yet to
complete the purchase. The circumstances in which a person is regarded as
havinginterestinsharesaresetoutinCAs7.

CompanyLawHandout3
AY201415,Term1


14
In May 2013, the Companies (Amendment) Bill proposes to include the following
newprovisioninCAs7(1A):
(1A) Subject to this section, a person has an interest in shares if he has
authority(whetherformalorinformal,orexpressorimplied)todisposeof,or
toexercisecontroloverthedisposalof,thoseshares.
Thenewprovisionwilloperateastheguidingprincipletodeterminewhetherone
hasaninterestin sharesofacompany.This amendmentwillalso bring CA s7 to
beconsistentwiths4oftheSecuritiesandFuturesAct(thedefinitionofinterest
insecurities).

Canyougiveanexampleforthefollowingcircumstancesofinterestsinshares?
beneficial/equitableinterestss7(2)
contractofpurchases7(6)(a)
righttotransfer(e.g.underawill)s7(6)(b)
optiontopurchases7(6)(c)
righttoexerciseorcontrolrightsattachedtheretos7(6)(d)
Jointlyownedsharess7(7)

Butexclude:
interestsinunittrustss7(3)
interestsofabaretrustees7(9)(a)
interestsofbanks/financialinstitutionsheldbywayofsecuritys7(9)(b)
interestheldbyreasonofanoffices7(9)(c)
sharesboughtbackbycompanys7(9)(ca)
prescribedinterestss7(9)(d)

(c)DeemedInterests

This is a particular type of interest in shares. This concept usually arises in

corporate structures with complicated shareholding, where a person who has
indirectinterestinashareisdeemedbylawtobeinterestedinthatshare.For
example,ifAcontrols55%ofCompanyB,whichthenholds15%ofthesharesof
CompanyC,AisdeemedtohaveaninterestinthesharesofCompanyCunders
7(4).

TrytofigureourthemeaningofCAs7(4)and7(4A):

(4)Where a body corporate has, or is by the provisions of this section deemed

tohave,aninterestinashareand
(a) the body corporate is, or its directors are, accustomed or under an
obligation whether formal or informal to act in accordance with the
directions,instructionsorwishesofaperson;or
CompanyLawHandout3
AY201415,Term1


15
(b)apersonhasacontrollinginterestinthebodycorporate,thatpersonshall
bedeemedtohaveaninterestinthatshare.

(4A)Where a body corporate has, or is by the provisions of this section (apart

fromthissubsection)deemedtohave,aninterestinashareand
(a)apersonis;
(b)theassociatesofapersonare;or
(c)apersonandhisassociatesare,
entitled to exercise or control the exercise of not less than 20% of the votes
attachedtothevotingsharesinthebodycorporate,thatpersonshallbedeemed
tohaveaninterestinthatshare.
1

Asitisanimportantbutdifficultconcept,youareencouragedtostudytheCAs
7(4)and7(4A)closely,andwewillworkthroughtheconceptsinclass.Bepatient!

6. Transferofshares

(a) ShareTransfers

Ashareholdermaydecidetosellorgiveawayhisshares.Asale,giftorother
disposalofsharesiseffectedbywayofatransfer.

Acompletetransferwillinvolve(atleast)threebasicsteps:
i. thetransferorandtransfereeexecute(sign)asharetransferform;
ii. thetransferorortransfereelodgestheformwiththecompany;
iii. if all is in order, the company registers the transferee as a new member
ofthecompany,andissuesasharecertificatetohim.

(b) Restrictionsontransfer

Bydefinition,thetransferofsharesinaprivatecompanyhastoberestricted
in some way (CA s 18(1) CA). What is the most common form of such
restriction?

Onecommonwayistoconferuponthedirectorsthediscretiontorefuseto
register a transfer of shares in the Articles. In this circumstance, the legal
question is whetherthedirectors are obligedtogivereasonsfortherefusal
toregister?SeeCAs128(noticeofrefusal).

1
The Companies (Amendment) Bill 2013 proposes to changes it to 20% of the voting power
instead of 20% of the votes attached to the voting shares.
CompanyLawHandout3
AY201415,Term1


16
Yes,CAs128(2)(XiamenInternationalBankvSingEng(Pte)Ltd[1993]
2SLR(R)176)
Once reasons are give, court may review the reasons to decide if they
aresufficient.
Reasons are insufficient if directors act in bad faith. The issue of good
faithwillbefurtherexploredwhenwediscussdutiesofdirectors.

What is the effect of a preemptive right? Why do you think preemptive

rightsareincludedintheArticlesofAssociation?