Variation of Class Rights

Abstract

The companies offer shares of different types to raise capital. These shares can be of different types having different limitations, references, rights and other specifications of. In order to raise capital, the companies issue different types of shares. These shares can be similar to the ones that are already offered by the company or can be different. In order to issue shares that are different than the existing class of shares, the company must make legal provisions in the articles or memorandum. It also need to seek the consent of the holders of the existing class of shares.

Introduction1

Discussion1

Classes of Share Capital1

Ordinary Shares1

Preference Shares1

Deferred Shares2

Redeemable Shares2

Variation of Class Rights2

Variation of Shareholder's Class Rights3

Strengths of the Legal Provisions of Variation of Shareholders' Class Rights3

Weaknesses of the Legal Provisions of Variation of Shareholders' Class Rights4

Conclusion4

Bibliography5

Variation of Class Rights

Introduction

The Companies Act of 2006 does not properly define the share capital or share. The share is defined as the share in the share capital of a company. Whereas, capital means share capital that is different from loan capital or borrowed money.

The shares of a company are shareholder's personal property, while the owner of the assets is the company itself. Therefore, owning of shares does not provide property rights to the shareholder on the assets of company. The shares in a company need to have a fixed nominal value.

It is in the principles of company law to maintain the share capital so that protection can be provided to the creditors' interests. This maintenance principle of capital provides a basis for many provisions that relate to the share capital. It includes payment for share capital, the distribution to the shareholders, redemption of the shares and burying back of company's own shares by the company itself and the reduction of the share capital.

Discussion

Classes of Share Capital

The shares can be divided in various classes and each class's right to vote and the type of obligation towards the company is different. The different types of class of shares in set in the constitution of the company. The common classes of shares are as:

Ordinary Shares

This type of shares provides the owners of these shares with the rights of participation with respect to the surplus assets and the dividends capital at the time of closing the company. When the ordinary shares are placed in the same capital structure as that of preference shares, then the ordinary shareholder will participate in the repayment capital or dividend after the preferential shareholder's rights have been settled. If the company does not issue shares with different rights or limitations then all shares that the company offered will be ordinary shares.



Preference Shares

When a company creates preference shares, the owners of this class of shares get returns on capital and dividends before the owners of ordinary shareholders. The preference shares can be divided into cumulative and non-cumulative. In the cumulative preference shares, the preference dividend arrears is not announced in the previous years, along with the current preference divided need to be paid ...