It

is general practice for a co. to issue dierent classes of shares. Such classes of shares may dier with respect to their nominal value, or more fundamentally the rights attached to them. Section 66(1) CA65 provides that a company may not issue PS unless certain rights are set out in the Memorandum/ Articles of Association on e.g - cumulative or not; priority to dividend payment vis a vis other shares, right to participate in surplus of assets and prots, priority with repayment in winding up and voting rights.

Classes of Shares

Preference Shares
Section 4 CA65 - a share by whatever name called which does not entitle the holder to vote at a general meeting or to participate beyond a specied amount in any distribution whether by way of dividend or on redemption, in a winding up or otherwise. - has priority over ordinary shares. - carries the right to a xed dividend.
(J09 6a)

Class Rights Rights enjoyed by particular classes of shares. Such rights will deal with matters concerning dividends, return of capital, voting and the right to appoint directors. All shares carrying identical rights are grouped together into a class of shares. (e.g ordinary shares and preference shares)

Rights attached to preference shares

(i) right to cumulative dividends. - refers to the right to receive arrears of dividends IRO those years where no dividend is declared. (ii) right to participate in surplus prots. - refers to the right of the PS/holder to enjoy a higher dividend in those years where the co. has made higher prots and is able to give a higher dividend to its ordinary shareholders. (iii) right to participate in surplus assets in the winding up. - refers to the right of PS/holders to share in the surplus assets of the co. when the co. is wound up. (iv) priority to repayment of capital. - refers to the right of the PS/holders to be repaid their capital ahead of the ordinary shareholders in a winding up of the co. (v) limited voting rights. - although s.4 denes a PS as a share that does not carry the right to vote at GM, they can and often are, given limited voting rights. e.g s.148 CA65

16 - 1 Teh Joo Ling All rights reserved

Variation of Class rights

Section 65(1) CA65 - A variation of a class right is one which directly alters the right of a class of shareholders.
(A distinction must be drawn between a variation of a class right and a mere variation of the enjoyment of class rights.)
(J05 Q10a; J09 Q6b)

the rights attached to any class of shares

(unless otherwise provided by the terms of issue of the shares of that class) may be varied by one of

Art 4 Table A Fourth Schedule

What is NOT variation?

(a) Issuing shares of the same class to allottees who are not already members of that class
(unless the dened class right prohibits this)

two methods,

- White v Bristol Aeroplane Company Ltd

(although Ws block voting power had been diluted, there were no variation of Ws rights per share)

(i) by the passing of a special resolution at a separate meeting of that class of s/ holders OR (ii) with the written consent of the holders of at least three fourths (75%) of the issued shares of that class.

Section 65(6) CA65 - the issue of PS ranking pari passu with existing PS is deemed a variation unless the rst issue expressly authorized it. the co. will have to follow the procedure in its AA.
(the Malaysian position is di from the common law position in White v Bristol Aeroplane, which held that even an issue of PS ranking pari passu with an existing one, will not amount to variation of rights.)

Dissatised Shareholder
- Allows holder(s) of not less than 10% of the issued shares of the class in question - To challenge the validity of the Variation / to apply to court under Section 65 CA65 to have the variation or abrogation of their rights cancelled. - Application to the court must be made within 1 month after the date on which the consent was given or the resolution was passed. - The variation or abrogation will be of no eect until conrmed by the court.

(b) Subdividing shares of another class with the incidental eect of increasing the voting strength of that other class - Greehalgh v Arderne Cinemas Ltd
(although the other class of shares had increased their voting power 5 fold, there was no variation of Gs rights per share)

16 - 2 Teh Joo Ling All rights reserved

When shares are issued/allotted, the price is received by the co. When shares are sold, the money is paid to the shareholder. The co. receives nothing.

Issue/Allotment of Shares & Transfers

Shares Section 98 CA65 - A share is a transferable form of property. Legal title in a share is vested in the person to whom the share is allotted or transferred and whose name is on the register of members IRO that shares. Who is a member? A person who has agreed to become a member AND whose name has been entered into the register of members.
(hence, where shares have been sold but not registered in the name of the purchaser, the person whose name is on the register of members remains the legal owner of the shares.)

Section 98 CA 65

Transfer of Shares

proper sequence: 1. The transferor (must be the registered owner) executes a proper instrument 2. The share certicate and transfer form are lodged with the co. 3. If the transfer form is in order and there are no share transfer restrictions, the co. must within 1 month issue a new share certicate in the name of the transferee - Section 105(1) CA65 4. If there are share transfer restrictions, they must be complied with otherwise the transfer will be invalid. 5. If the directors have a discretion to refuse to register a transfer, they must make a decision within a reasonable time. In the event that the transfer is rejected, notice of the rejection and a statement of facts must be sent to the transferor and transferee within one month after the date that the transfer was lodged with the co. Otherwise, the transfer must be registered and a new share certicate issued within 1 month

Company must within 1 month issue the new share cert with the transferees name provided there are no share transfer restrictions. How do you cease to be a member? 1. When M dies 2. When shares are transferred and transfer is registered 3.When co. is dissolved.

Shares are freely transferable unless restrictions are imposed by the MA or AA - Lim Ow Goik v Sungai Merah Bus Co e.g. Pre emptive rights - A transfer in breach of the share transfer restrictions may be set aside. In particular, a transfer in breach of rights of pre-emption is invalid. Directors have no discretion to refuse to register a transfer of shares unless the articles so provide. Where provided, the power must be exercised bona de in what they consider is in the interests of the co. and not for any collateral purpose - Kesar Singh v Sepang Omnibus Co Ltd Executed by the s/holder named in the share certicate but which is blank as regards the transferee Obtained from Registered Owner of Shares - The transferee obtains an equitable interest in those shares even though his name is not lled in on the transfer form Obtained from person other than Registered Owner - Most of the problems arise when a transferor purports to transfer shares that are not registered in his own name. - The transferor cannot then pass good title, in accordance with the principle nemo dat quod non habet. - A forged transfer is a total nullity and no title can pass under such transfer - Barton v London & North Western Railway The share certicate contains the name of the holder and the amount to which the shares are paid up. This amounts to representations by the co. that the person named in the share certicate is the owner of the shares and the co. will be estopped from denying this to any person who relied on it to his detriment - Daily Telegraph Co v Cohen
16 - 3 Teh Joo Ling All rights reserved

Restriction on Transfer of Shares

DIRs Discretion to Refuse Registration of a Transfer

Daily Telegraph Co v Cohen where as a result of a forged transfer the original owner was removed from the register of members and replaced by the rst transferee. X, who was duly issued with new share certicate by the co. X in turn transferred the shares to Y, who was the registered s/holder when the forgery was discovered. The court held that the original owner was to be restored to the register of members, but Y was entitled to damages from the co. as it was estopped from denying Ys title.

Blank Transfers

Share Certicate Estoppel