LAW 2505 Lecture Notes - Lecture 5: Stock Certificate, Transfer Tax, Listing Rules
23 May 2018
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SHARES; CLASS RIGHTS; DIVIDENDS
ALWAYS START
STEP 1: (Client’s name) holds…shares in (Co’s name)
STEP 2: As they obtained these through
- Subscription upon registration s 117
- agreement: issue (if necessary, satisfy process below), transfer – purchase (if necessary, satisfy
process below)
- transmission upon death or bankruptcy s 1072A, B)
they are a member according to s 231 provided that their name has been entered on the member’s register
which the Co is required to maintain by ss 168-169 at their registered office or business premises CA s 172
- Co limited by shares: member = shareholder
- membership commences on date entered on register
- In the absence of evidence to the contrary, register is proof of the matters shown in the register s
176 (entry to register is evidence of member's rights (to vote); gives standing to exercise members
remedies)
- Co’s refusal to transfer- see shares notes
SIDE ISSUE: has the Co satisfied their rights in relation to the register?
1. Register must contain following info CA s 169
a. Members name and address
b. Date on which the entry of members name is made
c. An index if there are more than 50 members
d. If there is share capital- number, type and class of shares; dates of issue; amounts paid or
unpaid
2. Company must allow its members to inspect the register without charge s 173
3. Person aggrieved may apply to the court to have the member corrected s 175
4. Use of information is restricted CA s 177
a. Can't use for advertising or improper purpose (IMF v Sons of Gwalia Ltd (2005) 143
FCR 274
Characteristics of a share
….’s shares are his/her personal property s 1070 CA; satisfies definition of securities s 92 CA
…. can transfer it, sell it, given it as security, left in a will, held on trust s 1070A(3)
a. Gives holder a collection of economic and proprietary rights and obligations relating to an interest in a
company Pilmer v Duke Group
b. A share is NOT
i. A debt Pilmer
ii. A right to any part of the company's assets, due to separate legal entity of company (it is a right
in specie) Macaura V Northern Assurance
Issue: a member wants to transfer their shares
STEP 1: (client)’s shares are his/her personal property s 1070 CA; Client) can transfer it, sell it, given it as
security, left in a will, held on trust s 1070A(3)
STEP 2: Presumption that shares are freely transferable- Constitution may restrict- as long as clear and
unambiguous Eg: board approval Sung Li Holdings
STEP 3: Procedure for transfer
1. Not compete until transferee’s name is entered on the register of members s 231 CA;
1. RR 1072F(1) (transferor remains legal owner until this time- share is property- remedies in property
law)
2. Procedure for unlisted companies
1. share transfer form and share certificate are delivered to registered office by the transferor – s
1072F(2)
a. Any constitutional requirements complied with
b. If company does not refuse registration
i. The transferee’s name is entered in the register of members
ii. It must issue a share certificate to the transferee 1 month after the transfer is lodged: s
1071H(3) CA
2. Procedure for listed companies: governed by operating rules of CHESS, not the constitution - Clearing
House Electronic Subregister System (CHESS) owned by ASX
find more resources at oneclass.com
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a. A Operating rules of CHESS constitute a statutory contract governed by CA: s 822B CA
b. Court can enforce: s 822C C
STEP 4: Directors not required to enter the transferee’s name in the register of members unless the following actions
have been done: RR s 1072F(2) CA
1. transfer and any share certificate have been lodged
2. Applicable fees have been paid, and
3. Any reasonably required information as to right to transfer has been provided
STEP 5: directors may refuse
1. Proprietary/ unlisted public companies
a. constitution may give directors the power to refuse to register a share transfer (RR s 1072G)
(note- ASX Listing Rules prohibit refusal)
b. Directors may refuse to register a share transfer if: RR s 1072F(3) CA
1. The share is not fully paid
2. The company has a lien on the shares
3. Or for any other reason: RR s 1072G CA
2. Public companies – directors must not prevent, delay, or interfere with the registration of a transfer of
shares: ASX Listing Rule 8.10
STEP 6: Limitations on directors' refusal to register a transfer
1. Discretion must be exercised in good faith, for proper purposes, in the company's interests Re Smith and
Fawcett- questions what is a reasonable reason?
2. Refusal without just cause- person may apply to court s 1071F
a. Burden of proof on applicant
b. If constitution provides that no reason needs to be given, then no unfavorable inference can be drawn
from not providing a reason Aust Metro Life Insurance
1. If reason is given, subject to scrutiny Roberts v Coussens
2. Existence of the right to refuse is not itself a just case Trafalagar West Investments
a. MEMBERS REMEDIES OPPRESSION
STEP 5: If the company refuses the registration
1. PTY: Transferees must be notified within 2 months of the refusal: s 1071E CA
Issue: the company is attempting to reduce share capital
STEP 1: Share capital = total amount of money representing what members have provided/agreed to provide in
cash/other value Ch 2H CA
a. Before 1998, constitution had to state nominal capital- maintenance of share capital protected creditors
(Trevor v Whithworth)
i. Now- Shares have no par value s 254C- creditors protected through other mechanisms
b. Hence, company can reduce if, Per s 156B it does
i. Not materially prejudice creditors?
ii. Is fair and reasonable to shareholders?
iii. Has been approved by shareholders?
c. Directors must take care to avoid breaching their duties even where a reduction appears authorised under
the CA or is approved by the members s 260E (don't reduce for an improper purpose)
Issue: the company is attempting to modify C* to take up more shares/ expropriate shares
STEP 1: Co can modify C* by special resolution (75% of eligible voters at GM: s 9, s 136(2): Subject to any further
c* requirements. Eg higher majority than 75% s 136 (3)-(4)
STEP 2: Members bound to all changes unless a limitation applies:
1. members cannot be bound (unless they agree in writing) to take up more shares, increase liability, increase
restriction on share transfers s 140(2)
2. member has right to prevent expropriation if Gambotto requirements aren’t satisfied
a. Where no expropriation or alteration, alteration is valid provided
i. it is not beyond the purpose contemplated by the constitution OR oppressive to minority
b. Where there is expropriation of minority shares by majority or alteration of proprietary rights
attaching to shares, burden is on majority to show:
i. Resolution was passed for proper purpose to save company from significant harm because
continued shareholding of the minority would be detrimental to the co and interests
of existing shareholders generally
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Step 1: (client"s name) holds shares in (co"s name) Co limited by shares: member = shareholder. Membership commences on date entered on register. In the absence of evidence to the contrary, register is proof of the matters shown in the register s. 176 (entry to register is evidence of member"s rights (to vote); gives standing to exercise members remedies) Co"s refusal to transfer- see shares notes. Issue: a member wants to transfer their shares. Step 1: (client)"s shares are his/her personal property s 1070 ca; client) can transfer it, sell it, given it as security, left in a will, held on trust s 1070a(3) Step 2: presumption that shares are freely transferable- constitution may restrict- as long as clear and unambiguous eg: board approval sung li holdings. 1072f(2: any constitutional requirements complied with, if company does not refuse registration. The transferee"s name is entered in the register of members.
