This blog is written by Mr. Nauman Ul Qadeer. Please read this blog and provide your valued comments
ORDINARY SHARES WITH DIFFERENT CLASSES AND RIGHTS
Every Company having share capital can issue shares with different classes and rights, provided that Classes and Rights are defined in Memorandum and Articles of Association of the Company.
Where classes and rights are not defined in the Memorandum and Articles of Association of the Company or require to alter the rights of any class of shareholders. Alteration of Articles under Section 38 of the Companies Act 2017 would be required.
Section 38 require companies to pass Special Resolution, i.e. by majority of at least three-fourth of the Members or of the class of Members affected by such alteration and its reporting through Form – 26 along with altered copy of the Articles of Association to be filled with Registrar of the Companies.
Where the Company having different classes and rights, decides to further issue of shares, compliance of Section 83 of the Companies Act 2017 and Companies (Further issue of shares) Regulations 2020 are required.
Section 83 of the Companies Act 2017, in addition to normal issue of shares procedures / requirements, is to ensure that offer of shares shall be in strict proportion to the shares held in respective kinds and classes.
Whereas Rule # 6 of the Companies (Further issue of shares) Regulations 2020, require to have recommendation of the Board, through Board Resolution, containing following information:
- Quantum of the issue i.e. as percentage of existing paid up capital;
- Issue size;
- Issue price;
- Purpose of the issue;
- Utilization of the proceeds of the issue;
- Benefits of the issue to the company and its shareholders;
- Risks, if any, associated with the issue to which the company and/or its members are exposed to;
- Justification for issue of shares at, premium or at discount to face value (if applicable);
- Description of different kind of shares such as ordinary shares and preference shares;
- Description of different rights such as different class in each kind, rights and privileges attached to each class or kind of capital;
- Whether the shares are being issued as right or other than right;
- Whether the holders of such shares shall be entitled to participate in profits or surplus funds of the company;
- Whether the holders of such shares shall be entitled to participate in surplus assets and profits of the company on its winding-up which may remain after the ordinary shareholders has been repaid;
- Whether payment of dividend on preference shares is on cumulative or non-cumulative basis;
- In case the shares being issued are convertible into ordinary shares, then mode, mechanism and manner of such conversion;
- Rights of holders of preference shares regarding dividend, participation in general meetings and voting therein before and after conversion of preference shares into ordinary shares;
- In case the shares are partially or wholly redeemable, then mode and manner of redemption and Any other feature as deem appropriate by the board.
- Issue of shares is authorized by a special resolution; and
- Company shall seek approval of the Commission for issuance of such shares.
1 – Section 38 – Alteration of Articles
2 – Section 58 – Classes and Kinds of Share Capital
3 – Section 59 – Variation of Shareholders Rights
4 – Section 83 – Further issue of Capital
5 – Regulation No. 6 of the Companies (Further Issue of Shares) Regulations 2020
Nauman Ul Qadeer
September 11, 2020