Day 143 Shares and related law regulations

Shares and related law regulations

We have already discussed the shares in the company under accounting and financing applications, but there still many legal regulations associated with this specific investment. Both the common law and the Corporations Act(2001) had determined the characteristics of the shares, plus other statutory provisions related to it. 

Under section 1070A Corporations Act(2001), the share can be classified as the property of shareholders. Which is able for its owners to transfer or transmit corresponding to the company’s constitution or the operating rules of the Clearing and Settlement facility. The share itself is can be devoluted by the shareholders will or by operation of law. It represents the rights and obligations relating to an economic and proprietary character, but not constituting a debt, see Pilmer v The Duke Group [2001] HC. The two major types of shareholder’s rights are the distribution right on dividend and surplus assets on winding up. In addition, the owner will have control rights over the company, such as the voting right. 

As we mentioned in previous writings, there are different class of shares that comprises the company’s equity capital. The S.254B stated that the corporation may determine the term on which its shares are issued and the rights or restrictions attaching to the shares. Generally, the class of shares are distinguished by the voting right and entitlement for distributions. The detailed rights must be set out in the constitution, share issue contract and the application for registration. More importantly, the ASIC must bu notified if there is any variation of class rights(S.246(F)). The main purpose of issuing different class of shares is to maintain certain management power among the specific groups of shareholders. It also maximizes the tax payment schemes. We declared that any division of class right must be reported to ASIC, so what is the definition of the rights been varied? According to common law, the share rights will be varied only if it affects the substance of the class right, as opposed to the mere enjoyment or value of the rights. On the other hand, the Corporations Act further summarized the determination by two approaches: the division of rights and variation of rights. If the shares are divided into further share classes without maintaining the same class rights, it will need to follow the procedures identified by S.246B. Furthermore, if the rights attached to the shares are changed, the procedure will also apply. If this process is not stated in the constitution, then a special resolution or a written consent of members with at least 75% of the votes of the affected class must be obtained, in order to vary or cancel class rights.