Monday, February 14, 2005 comply

SHARES with
NATURE OF SHARES section
They are not considered as immovable property. (fill in..). 202 (1)
SEE BORLAND’S TRUSTEE V. STEEL per Farwell J@ 855 of the Report. (b)
Shares are measured in terms of interest. A shareholder is not a creditor of the company for the money he has invested rendered
in the company; neither is he a creditor in respect of dividends until those dividends have been declared. The any
shareholder’s financial interest is in the company itself, i.e. the hope of future dividends and distribution upon winding up. issue of
The shareholder does not have a direct interest in the company’s assets. The assets belong to the company. shares of
(MACAURA V. NORTHERN ASSURANCE). Shareholders have no interest in the stated capital of the company. no legal
consequ
Again, under Ghanaian law, shares are of no par value. (Section 40 of the Code). In other words, the shares have no ence
particular amounts or value attached to it in the regulations of the company. The reason cited by Gower for this is that the whatsoe
giving of value for shares is misleading because it gives the impression that the shares have a fixed value when in reality ver.
shares actually have a fluctuating value in accordance with the business fortunes of the company. In view of the fact that However
we do not have par value shares in Ghana, it is important to note 3 things very carefully. These are: section
 References to share capital: we do not have share capital in Ghana. They belong to countries with par value 202(6)
shares. provides
that
 The “no discount rule” does not apply in Ghana. At Common Law, shares cannot be issued at a discount. This where a
rule however does not apply in Ghana. person
relies in
 There is no share premium account under Ghanaian law. good
faith on
THE ISSUE OF SHARES the
The number of shares that a company can issue is limited to the number of authorized shares as set out in the director’s
regulations. (Section 16(4) and 41 of the Code). If the company wants to issue more shares than the authorized shares,
it should amend the regulations. (section 22 and 57 of the Code). See also ASAFU ADJEI V. AGYEKUM. The power to
issue shares resides in the Directors as part of their general powers to manage the company’s business and exercise all
its powers. In the exercise of the power to issue shares the Directors are limited by the pre-emption rights of
shareholders as provided in section 202(1)(b) of the Code. In ADAMS V. TANDOH the court held that the failure to
powers to issue shares without notice of a failure to comply with section 202 (1) (b) that transaction cannot be PAYME
impeached. NT FOR
SHARES
THE DISTINCTION BETWEEN THE ISSUE OF SHARES AND ALLOTMENT OF SHARES The
See CONTE V. KPEGLO [1964] GLR 311. In this case, the court considering whether shares have been properly issued terms of
on the basis of a letter which said that the shares have been allotted to the respondent held that an allotment of shares payment
did not by itself amount to an issue of shares to a person or make that person a shareholder. In the court’s view, an for
allotment of shares is an offer of the shares to the relevant party and the offer has to be accepted and the shares paid for issued
and other conditions if any fulfilled. It is only when this is done can the shares be deemed to be issued to the person and shares is
the person’s name is then entered on the Register of the Company. This view was upheld in the CA case (unreported) of determin
CHRISTOPHER MENSAH V. GK OBIRI. In this case the CA approved of CONTE V KPEGLO (supra) and relied on ed by the
HALSBURY’S LAWS OF ENGLAND VOL 7 4TH EDN paragraph 368 that “a resolution to allot shares is not necessarily agreeme
the issue of them and the terms issue seems to mean allotment followed by registration or possibly some other act nt
distinct from allotment whereby the title of the allottee becomes complete”. See NATWEST BANK V. IRC [1994] 3 AER between
1. the
company
LIMITATIONS ON THE POWERS OF DIRECTORS TO ISSUE SHARES and the
Section 202 (1) (b).
Improper use of the power to issue shares: where it is proved that the Directors have exercised their powers to issue
shares to entrench their own shareholding position or to destroy an existing majority, the issue of the shares would be
held to be an improper exercise of the Director’s powers. See POLITIS V. PLASTICO [NO 2]. SEE ALSO HOWARD
SMITH V. AMPOL PETROLEUM [1974] AC 821.

REGULATORY RESTRICTIONS ON THE ISSUE OF SHARES

 Under section 12 of the EXCHANGE CONTROL ACT (ACT 71), it prohibits the issue of shares to an external
resident without Bank of Ghana approval. (This has been relaxed with regard to listed securities).

 Specific industry Legislation: mostly this will apply where the issue of shares will lead to a change in control. For
example, see the MINERALS AND MINING LAW PNDCL 153 for mining companies. See also the NCA for
telecom companies.
member. See section 41 of the Code. In the absence of a contrary agreement, shares shall be paid for in cash. (Section
42 (1). Section
“Payment in cash” is defined under section 45 of the Code to mean that the company shall have actually received cash 51 (b):
for the shares. Under section 42 of the Code, if the company decides to accept non-cash consideration, the agreement there is a
covering the payment should be filed at the company’s registry and should indicate the value of the consideration. The presumpt
statement of the value of the non-cash consideration shall only be prima facie evidence of the true value of the ion that
consideration and may be impeached upon liquidation by a liquidator or a creditor of the company on the grounds that fixed
the true value of the consideration is less than as stated and the shares may be treated as unpaid to such amount as the preferent
court may direct. ial
dividend
PROCEDURAL REQUIREMENTS s are
See Section 43 of the Code for certain things that have to be filed. See section 53 on the issue of a share certificate cumulati
within 2 months. ve and
all
CLASSES OF SHARES arrears
There is a general presumption that all shares rank equally in all respects. See section 51 (g) of the Code. Under section will be
46 of the Code, the regulations of the company may provide for different classes of shares by attaching to certain of the paid
shares preferred, deferred or other special rights and restrictions whether as regards dividends, voting, redemption, when
repayment or otherwise. See HARMAN V. BML GROUP. In this case it was held that the rights attaching to shares under dividend
a shareholder’s agreement amounts to the creation of a class of shares under the regulations. s are
declared.
PREFERENCE SHARES The
A preference share is defined under section 48 of the Code as a share which does not entitle the holder to participate presumpt
beyond a specified amount in any distribution whether by way of dividend or in a redemption by winding up or otherwise. ion of a
(See section 48). Section 49 deals with the voting rights of preference shareholders. cumulati
ve
RIGHTS TO DIVIDENDS OF A PREFERENCE SHAREHOLDER dividend
NB! All these are presumptions. There is a general presumption that all shareholders including preferential shareholders is
are only payable if the dividends are declared. This presumption is rebutted in the case of preferential shareholders if the rebutted
terms of issue of the shares indicate that dividends would be paid so long as there is a surplus. if it is
EVLING V. ISRAEL [1918] 1 CH 101. provided
that the preferential dividend shall be paid out of profit for each year. Section 51 (b) provides: “unless the contrary
intention appears, a fixed preferential dividend payable on any class of shares shall be cumulative, that is to say, no This
dividend shall be payable on any shares ranking subsequent thereto until all the arrears of the fixed dividend have been reverses
paid” the
SEE STAPLES V. EASTMAN PHOTOGRAPHIC MATERIALS [1896] 2 CH 303. COMMO
F: the regulations of the defendant company said that the holders of preference shares shall be entitled out of the net N LAW
profits of each year to a preference dividend at the rate of 10L per cent per annum on the amount for the time being paid position
or deemed to be paid up thereon. It said that after payment of such preferential dividend the holders of the ordinary which
shares shall be entitled to a like dividend at a rate of 10L per cent per annum on the amount paid on the ordinary shares. was to
For some years, out of the net profits, only the preference shareholders were paid. Later on in a particular year, the the effect
company made a substantial profit and the directors proposed to pay 10L per cent to the preference shareholders and a that
dividend to the ordinary shareholders. The plaintiff commenced the action on behalf of himself and all the other there
preference shareholders asking for a declaration that the preference shareholders were entitled to be paid a dividend of was a
10 per cent for the years in which they were not paid any dividend BEFORE any payment could be made on the ordinary presumpt
shares. ion that
The court of first instance granted the plaintiff’s application and the company appealed. in the
absence
ISSUE: whether the preference shareholders are to have cumulative dividends or whether they were to have dividends of a
only according to the share of profits in each year in which there are profits?

HOLDING: according to the ordinary meaning of the words contained in the regulations of the company, the preference
shareholders were not entitled to cumulative dividends. They were only entitled to 10L per cent per annum out of the net
profits declared for a particular year, with the rest going to the ordinary shareholders.
NB! This meant that they could only be paid dividends amounting to 10% of the net profits made in a year according to
the amount paid on their shares. The words of the regulations thus made it clear that they could only be paid when profit
was made by the company.

Tuesday, February 15, 2005

The third presumption is that unless the contrary intention appears, in a winding up…(51 (c) : “ unless the contrary
intention appears, in a winding up arrears of any cumulative preferential dividend whether or not earned or declared shall
be payable up to the date of actual payment in the winding up;
contrary intention, cumulative dividends were not payable on winding up. Under Ghanaian law, the situation is the exact
opposite. FUNDS
FROM
The fourth presumption is that (section 51 (d): “ If any class of share is expressed to have a right to a preferential WHICH
dividend, then, unless the contrary intention appears, such class shall have no further right to participate in dividends”. THE
COMPA
Section 51 (e): “ If any class of share is expressed to have preferential rights to payment out of the assets of the NY CAN
company in the event of winding up then, unless the contrary intention appears, such class shall have no further rights to REDEE
participate in the distribution of assets in the winding up” . M THE
This is just to reinforce the position in 51 (d). SHARES
Section
Section 51 (f) is a prevention of avoidance provision: “ In determining the rights of the various classes to share in the 60 of the
distribution of the company’s property on a winding up no regard shall be paid, unless the contrary intention appears, to Code
whether or not such property represents accumulated profits or surplus which would have been available for dividend lists two
while the company remained a growing concern” . ways:
When it comes to winding up and there is distribution, there is no distinction between accumulated profits and surplus. Out of
These are all available for distribution to all involved parties. the credit
balance
CONVERTIBLE PREFERENCE SHARES of the
These are preference shares that in their terms of issue allow for their conversion to equity shares. shared
deals
REDEEMABLE PREFERENCE SHARES account.
As a capital maintenance measure, a company is not allowed to acquire or hold its own shares. See section 56 (1) (d) of The
the Code. The law however allows a company to do so under certain circumstances. One of these circumstances is shared
where the company redeems redeemable preference shares. See section 59 of the Code. A redeemable preference deals
share is a share which by its terms of issue allows the company to redeem or buy it back at a certain time upon the account
fulfillment of certain conditions. When such shares are redeemed, they are available for re-issue by the company and is dealt
until re-issue, they are referred to as treasury shares. See section 59 (3) of the Code: “ On redemption, purchase, with in
acquisition or forfeiture shares shall be available for re-issue by the company unless the company by alteration of its section
Regulations cancels such shares; and in this Code, such shares, until re-issued or cancelled, shall be referred to as 63 of the
treasury shares”. Code.
 where
The second way is out of the proceeds of the fresh issue of shares made for the purpose of the redemption. (section 60). they
The company cannot take money from anywhere else apart from the share deals account for the purpose of redeeming reduced
the shares. The shared deals account is specifically for the purpose of redemption of redeemable preference shares. the par
value of
ORDINARY SHARES these
Ordinary shares bear the greatest risk and also possess a potential to reap the greatest rewards. After satisfaction of the shares
requirements of the preferential shareholders in relation to dividends the residual funds belong to the ordinary so that
shareholders. They have the right to vote at every general meeting of the company. (section 50). the value
received
by the
sharehol
VARIATION OF CLASS RIGHTS ders was
As noted in section 46 of the Code, there are specific rules in variation of class rights. The fundamental rule is that where reduced.
shares are divided into classes, the rights attached to ANY CLASS cannot be varied except in accordance with the It was
regulations. (See section 47 (1) of the Code). held not
What amounts to variations of class rights? At common law, there was great confusion and clear inequitable results from to be a
the cases. In RE SCHWEPPES LTD [1914] 1 CH 322, it was held that an issue of ordinary shares did not vary the class
rights of existing ordinary shares nor those of existing preference shares even though it diluted the voting rights of the
existing shareholders. See also DIMBULA V. LAURIE [1961] CH 353. In this case the rights attached to the preference
shares in the company included the right to participate in the winding up pro-rata the ordinary shares in all the remaining
assets. It was held that a bonus issue of shares exclusively to ordinary shareholders did not vary the entitlements of the
preference shareholders to participate in the distribution on winding up even though this may reduce the share of
individual shareholders in the available assets. See also GREENHALGH V. ARDEN. This was a case where the par
value shares divided into 50 p shares and 10 p shares. Each share carried one vote at a general meeting. The 50 p
shares were divided into 10p shares at one vote each. It was held that it did not vary the voting rights of the 10 p
shareholders. See also WHITE V. BRISTOL . in this case it was held that an issue of new shares ranking pari passu with
existing preference shares and ordinary shares could not amount to a variation of class rights because after the issue of
the new shares the rights attached to the existing shares remained the same. The only change is in the enjoyment of
those rights. See also RE MACKENZIE. In this case the preference shareholders were entitled to preferential dividends
which were calculated as a percentage value of their shares. The company engaged in a scheme called capital reduction
variation of the class rights. Gower described this as a shocking decision in his comments on section 46 of the the
Companies Code. holders
Under section 47 (6) of the Code, what amounts to variations in class rights are clearly stated. These are: thereof
1. Any resolution of the company which would have the effect of a diminution of proportion of votes exercisable by shall
that particular class. consent
in
2. Any resolution that would have a reduction in the proportion of dividends or distributions payable to that class. writing”.
In
Variation of class rights will only arise if the company’s shares are divided into classes. private
compani
Section 47 (2): where there is a prohibition of variation of class rights in the regulations, the company can do so only es, the
under a scheme of arrangement in section 231 of the Code. In section 47 (3), the company can by a special resolution law
vary class rights except where it is expressly forbidden as in 47 (2). However in section 47 (4) there cannot be any allows
variation of the class rights unless there is a prior written consent of at least 75% of the holders of that particular class of them to
shares. have
provision
Section 47 (7) of the Code makes it possible to challenge any variation of class rights. See also section 47 (10). s in their
regulatio
READ SECTION 47 CAREFULLY! ns
restrictin
See also section 75 of the Code: it deals with variation resulting from a capital reduction exercise. g the
transfera
TRANSFER OF SHARES bility of
The general rule is that except where there is an agreement to the contrary, shares are transferable without restriction. shares
(See section 95. ) and
sometim
TRANSFER OF SHARES IN PRIVATE COMPANIES es giving
See section 95 (2): “Subject to section 294 of this Code, the company’s regulations may impose restrictions of any pre-
nature whatsoever on the transferability of shares, including power for the directors to refuse to register any transfer and emption
provisions for compulsory acquisition or rights of first refusal in favour of other members or officers of the company; rights to
provided that no restriction shall be imposed on the transferability of any shares after the same have been issued unless existing
shareholders. These restrictions cannot be imposed after a person has acquired shares unless he agrees in writing to Exchang
the restrictions. e
This is the proviso to section 95 (2). Control:
Section
PUBLIC COMPANIES 13 of the
Section 294. Under this section, a public company cannot impose any restriction on the right to transfer shares in the EXCHAN
company. Any such restrictions are totally ineffective. There are two situations in which the directors may refuse the GE
transfer: CONTR
Where the person is an infant or of unsound mind. OL ACT:
Where the share remains unpaid for. (see the section for the details). shares in
a
This applies to listed companies as well. All listed companies are public companies. The listing regulations make it clear Ghanaia
that they cannot restrict the transferability of their shares. For listed companies, it is regulated by LI 1509 (the listing rules n
of the stock exchange). company
cannot
SECTION 98: REGISTRATION OF TRANSFERS be
The general point to note is that the company is only obliged to register absolute interest in shares. Trust relationships transferr
and nominee shareholders are not recognized under the Register of the company or the regulations. This means a ed to an
beneficiary of a trustee cannot demand to be recognized as a member of the company. The trustee on the other hand is external
a member of the company. This is because the shares are registered in his name. resident
The second point to note is stamp duty. (Section 98 (2). The document evidencing the transfer needs to be stamped. In without
Ghana the stamp duty is nominal. bank of
Ghana
TRANSMISSION OF SHARES BY OPERATION OF LAW (SECTION 99) approval.
When a shareholder dies, his legal representative takes his place and the company is required to register the legal Certain
representative as the new shareholder. See POLITIS V. PLASTICO [NO 1]. particular
industrie
SEE SECTION 102: the company has a lien over its shares. Under section 294 the directors can refuse to effect the s may
transfer of shares which have unpaid liabilities. have
their own
REGULATORY RESTRICTIONS ON TRANSFER OF SHARES restrictio
ns where transfer of shares may result in a change of control. (See the MINERALS AND MINING LAW for example in
respect of mining companies).
NB! In section 74 which deals with bonus issue of shares, where the company has surplus which can be used to pay
dividends, the directors can decide to transfer the surplus to stated capital and then issue shares to shareholders in
proportion to what they would have received if the surplus had been distributed as dividends. As a matter of tax law,
dividends are taxable. Bonus shares are thus taxable.