Part VI of the Companies Act 1997 opens with four short sections that define what a shareholder actually owns.
Section 36 — a share is personal property
A share in a company is personal property.
A share is not a share of the company’s assets. Because of section 16, the company owns its own property; the shareholder owns a bundle of rights against the company. Consequences follow: a share can be sold, mortgaged, held on trust, taken in execution, and passed on death or bankruptcy — and it is personal property for the purposes of the Personal Property Security Act 2011, so a security interest over shares is registrable there.
Section 37 — the rights a share confers
(a) the right to one vote on a poll at a meeting of the company on any resolution, including a resolution to — (i) appoint or remove a director or auditor; (ii) adopt a constitution; (iii) alter the constitution; (iv) approve a major transaction; (v) approve an amalgamation under section 234; (vi) put the company into liquidation; and
(b) the right to an equal share in dividends authorised by the board; and
(c) the right to an equal share in the distribution of the surplus assets of the company.
Subject to section 51, the rights specified in subsection (1) may be negated, altered, or added to by the constitution.
First, the vote is one vote per share on a poll — not one vote per shareholder. On a show of hands, Schedule 2 governs. Second, the six listed resolutions are examples, not limits: the right is to vote “on any resolution”.
The reference to section 51 in subsection (2) matters. Section 51 governs dividends, and in particular the requirement that shares of the same class carry the same rights to dividends unless the constitution provides otherwise. A constitution cannot use section 37(2) to defeat that discipline.
Section 38 — types and classes
(1) Subject to the constitution, different classes of shares may be issued.
(2) Without limiting subsection (1), shares may —
(a) be redeemable within the meaning of section 59; or
(b) confer preferential rights to distributions of capital or income; or
(c) confer special, limited, or conditional voting rights; or
(d) not confer voting rights.
| Class | Typical features | Used for |
|---|---|---|
| Ordinary | The section 37 default rights | The general body of owners |
| Preference | Preferential right to income or capital; often limited or no votes — s 38(2)(b), (c), (d) | Investors wanting a fixed return ahead of ordinary shareholders |
| Redeemable | Redeemable at the option of the company or the holder, or on a fixed date — ss 59–62 | Finite-term investment; staged exits |
| Non-voting | Economic rights without control — s 38(2)(d) | Employee and family holdings |
| Class with board rights | Constitution gives the class the right to appoint a director | Joint ventures and investor protection |
Once there is more than one class, the interest group machinery in sections 97 to 99 applies. Altering rights attached to a class requires the interest group process, and a shareholder in an affected group may then require the company to purchase their shares under section 99. Classes should be created deliberately, not accidentally.
Section 39 — no nominal or par value
(1) A share shall not have a nominal or par value.
(2) Nothing in subsection (1) prevents the issue of a redeemable share.
This is a deliberate break from the old law. There is no “K1 share” and no concept of a share issued at a premium or a discount. What matters is the consideration the board decides under section 47, and whether any of it remains unpaid — which is the measure of a shareholder’s liability under section 79.
The Act also has no concept of authorised capital. The board may issue shares under section 43, subject to the constitution, to pre-emptive rights under section 45, and to shareholder approval under section 44A where that section applies.
Section 40 — transferability
(1) Subject to any limitation or restriction on transfer in the constitution, a share is transferable.
(2) A share is transferred (a) by entry in the share register in accordance with section 65; or (b) in accordance with the terms of any exemption given by the Registrar under section 77.
(3) The personal representative of a deceased shareholder may transfer a share even though the personal representative is not a shareholder at the time of transfer.
Unlike the old law, there is no automatic directors’ discretion to refuse a transfer. If the shareholders want pre-emption rights, a right of refusal, or compulsory transfer on death or departure, those must be written into the constitution — where, under section 32(1)(b), they are enforceable by one shareholder directly against another.
Section 41 — contracts to issue shares
A contract or deed under which a company is or may be required to issue shares — whether on the exercise of an option, on the conversion of securities, or otherwise — is unlawful and void unless (a) the board has authorised the issue under section 43 and complied with section 47, or (b) all shareholders concur or agree with the issue.
Section 41(2) provides the workaround: subsection (1) does not apply to a contract that makes the company’s obligation to issue shares conditional on the board authorising the issue under section 43 and complying with section 47.
So options, convertible notes and subscription agreements must either be authorised by the board up front — with the section 47 consideration determination and certificate — or be expressly drafted as conditional. Getting this wrong makes the instrument void, not merely unenforceable, and section 47B deals separately with the consideration in relation to the issue of options and convertible securities.
Sources
- Companies Act 1997 — ss 16, 36–41, 43, 44A, 45, 47, 47B, 51, 59–62, 65, 77, 79, 97–99, 234
- Personal Property Security Act 2011
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.