MLL221 Study Guide - Final Guide: Oppression Remedy, Derivative Suit, Students Of Georgetown, Inc.
24 May 2018
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Corporate Law Topic 4
• Analyse the legal nature of a share and interpret the statutory provisions regarding the issuing of
shares
WHAT IS A SHARE?
Ownership of a share gives the investor proprietary rights and imposes obligations as defined by the
company's constitution and the law. These rights include the right to vote, receive information, right to
share in the assets of the company on a dissolution and receive dividends. A shareholder does not own a
direct interest in the company’s property.
1070A Nature of shares …
(1) [Nature of ownership]
A share [… ]
(a) is personal property; and
(b) is transferable or transmissible as provided by:
i. the company's, or scheme's, constitution; or
ii. the operating rules of a prescribed CS facility if they are
applicable; and
(c) is capable of devolution by will or by operation of law.
RIGHTS CONFERRED BY A CONSTITUTION:
A Constitution typically deals with:
• The appointment and powers of directors.
• The procedure for voting at meetings of directors and shareholders.
• The procedure for declaring dividends.
• Terms of issue for certain classes of shares.
• How shares can be transferred.
RIGHTS CONFERRED BY THE CORP ACT
Replaceable rules
Part 2M – financial reporting
Part 2J – buy backs and dealings with class rights
Part 2F.1A – derivative action
Part 2F.1 – oppression remedy
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ISSUE OF SHARES
How are shares created?
Contract between company and shareholder. Investor pays issue price. Directors decide to issue shares. May
be special requirements.
A company issues shares to investors to raise funds for operating its business activities.
• The issue price of a share is determined by contractual agreement between the company and
the investor.
• Usually, the issue price is paid in the form of cash, although non-cash consideration is also
permitted.
• An investor who pays the full issue price for their shares has no further liability to contribute
capital to the company.
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• Contrast the various classes of shares and identify what the variation of class rights are from a
complex set of facts
CLASSES OF SHARES:
Companies can issue shares of different types that have different rights attached to each type of share
s.124(1)(a) - power to issue shares
s.254B(1) - power to issue different ‘classes’ of shares
“A company may determine:
(a) the terms on which its shares are issued; and
(b) the rights and restrictions attaching to the shares.”
How do classes differ?
• Entitlement to dividends
• Priority in payment of dividend
• Voting rights
• Priority in payment of capital on winding up
• Right to participate in distribution of surplus assets on winding up
Where are class rights set out?
• Constitution
• Share issue contract
• Application for registration of company details classes of shares of initial members
• ASIC must be notified of any division of shares into classes: s.246F(1)
Why issue different classes?
To concentrate control of the company in the hands of certain shareholders
Particularly founding shareholders of small family companies
To issue shares that have the characteristics of debt
Achieved by issuing shares with a stated rate of dividend but with limited voting rights (preference shares)
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Document Summary
Corporate law topic 4: analyse the legal nature of a share and interpret the statutory provisions regarding the issuing of shares. Ownership of a share gives the investor proprietary rights and imposes obligations as defined by the company"s constitution and the law. These rights include the right to vote, receive information, right to share in the assets of the company on a dissolution and receive dividends. A shareholder does not own a direct interest in the company"s property. 1070a nature of shares (1) [nature of ownership] Part 2j buy backs and dealings with class rights. Companies can issue shares of different types that have different rights attached to each type of share s. 124(1)(a) - power to issue shares s. 254b(1) - power to issue different classes" of shares. A company may determine: (a) the terms on which its shares are issued; and (b) the rights and restrictions attaching to the shares.
