A great deal in the Companies Act 1997 turns on who counts as a shareholder. Section 78 answers it.
Section 78 — the three limbs
(a) a person whose name is entered in the share register as the holder for the time being of one or more shares; or
(b) until the person’s name is entered in the share register, a person named as a shareholder in an application for the registration of a company at the time of registration; or
(c) until the person’s name is entered in the share register, a person entitled to have their name entered under a registered amalgamation proposal as a shareholder in an amalgamated company.
Under section 49 a share is issued when the name of the holder is entered on the share register, and under section 40(2) a share is transferred by that entry. On incorporation and on an amalgamation there is inevitably a short interval before the register catches up.
Paragraphs (b) and (c) close that interval, so a newly incorporated company always has shareholders capable of acting, and the shareholders of an amalgamated company are not left in limbo. Both are expressed as “until the person’s name is entered” — once the register is written up, paragraph (a) takes over.
Why the register, and nothing else, governs
| Provision | Effect |
|---|---|
| s 69(1) | The entry is prima facie evidence that legal title vests in that person |
| s 69(2) | The company may treat the registered holder as the only person entitled to vote, receive notices, receive distributions, and exercise the other rights attaching to the share |
| s 72 | No notice of a trust may be entered on the register |
| s 49 | A share is issued when the holder’s name is entered |
| s 40(2) | A share is transferred by that entry |
| s 70 | Each director has a personal duty to take reasonable steps to see the register is properly kept and transfers promptly entered |
A person who has bought shares but is not yet registered, or who holds through a nominee, is not a shareholder for the Act’s purposes. They cannot vote, cannot requisition a meeting, cannot bring a derivative action under section 143, and cannot apply under section 152 as a shareholder.
Their protection is contractual — the trust deed or nominee agreement — plus, if registration is wrongly withheld, an application under section 71 for rectification of the register and compensation, which may be ordered against the company or a director.
What being a shareholder gets you
| Right | Section |
|---|---|
| One vote per share on a poll, an equal share in dividends, an equal share in surplus assets | s 37 |
| Exercise powers reserved to shareholders at a meeting or by written resolution | ss 86–88, 103 |
| Call a special meeting on the requisition of holders of 5% of the votes | s 102 |
| Question, discuss or comment on the management of the company at a meeting | s 90 |
| Require a statement of rights attaching to the shares | s 90A |
| Require the company to purchase the shares after certain resolutions | ss 91–93, 99 |
| Inspect company records and require information | ss 216, 219 |
| Apply for an injunction, leave for a derivative action, or relief as a prejudiced shareholder | ss 142, 143, 152 |
| Apply for rectification of the share register, or to have the Court alter the constitution | ss 35, 71 |
| Apply for an investigation of the company’s records | s 220 |
A wider category: “entitled person”
Some provisions extend beyond shareholders. Section 142, for example, allows an entitled person as well as a shareholder or director to seek an injunction restraining conduct that contravenes the Act or the constitution. The expression takes in people who are entitled to shares but not yet registered, and others the Act identifies — a deliberately wider net for the injunction remedy than for the general shareholder rights.
And what it costs you
Being a shareholder carries defined liabilities and no more. Under section 79 a shareholder is not liable for an obligation of the company by reason only of being a shareholder; except where the constitution provides for unlimited liability, the liability is limited to any liability expressly provided for in the Act or in the constitution.
- Amounts unpaid on the shares, and calls under section 82;
- Repayment of a distribution under section 54, or under section 89(4) and (5) where the shareholders authorised it unanimously;
- Liability of a personal representative or trustee registered as holder, under sections 84 and 85; and
- Liability of a former shareholder in a liquidation, under section 80, enforceable by the liquidator under section 318.
A shareholder is not required to acquire shares by an alteration to the constitution made after they became a shareholder, unless they agree. And under section 48, the issue of a share that increases or imposes a liability on a person is void without their prior written consent.
Sources
- Companies Act 1997 — ss 35, 37, 40, 48, 49, 54, 69–72, 78–85, 86–90A, 91–93, 99, 102, 103, 142, 143, 152, 216, 219, 220, 318
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.