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LPC- BLP MODULE - SHAREHOLDERS AND COMPANY DECISION MAKING (DISTINCTION)
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NOTES ON THE ROLE OF SHAREHOLDERS AND COMPANY DECISION MAKING
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BLP – SHAREHOLDERS AND COMPANY DECISION MAKINGThe Company’s Shareholders.
The shareholders of the company are the owners of that company. In return for buying shares in the
company the shareholders acquire certain rights.
Promoters.
Individuals who decide to set up the company are known as promoters before their
company has been established.
A promoter includes both those who take the steps to register a company under the CA
2006 and those who start or operate the business that the company will run.
The promoter will direct and oversee the initial stages of the formation of the company.
The primary fiduciary duty of the promoter is not to make a secret profit when forming the
company.
Another potential problem which arises for promoters is incurring expenses and liabilities on
behalf of the company before it has been set up
o Any attempt to act on behalf of the company before the date stated on the
certificate of incorporation has no legal effect as the company may ultimately never
be formed.
o A person cannot act as agent of a company which does not yet exist.
o The company, when it is incorporated, has no obligation under any contract
purportedly made on its behalf before its registration.
o Promoter is personally liable for any contract made; the company when formed
does not have to take over the contract.
Joining the company.
There are two requirements as regards becoming a shareholder of a private company
limited by shares and sharing in the potential risks and rewards of being its owner. Section
112:
o The person must agree to become a shareholder of the company
o His name must be entered in the register of members.
The subscribers to the memorandum.
o Those persons who signed the memorandum of association as subscribers
automatically become the first shareholders of the company when the registrar of
companies issues the certificate of incorporation.
o Their agreement to become shareholders is deemed given and their name or names
must be entered into the register of members.
Buying shares from the company.
o A company will often seek to raise money by issuing new shares to shareholders in
return for money or money’s worth.
Buying shares from existing shareholders.
o Shares in a company are a form of property and as such may be bought or sold.
o If an existing shareholder wishes to reduce or remove his financial investment in the
company, he may try to sell some or all of his shares to another person. The other
person who buys the shares will become a shareholder.
Receiving a gift of shares.
o Shares, being property, may be given away instead of being sold.
o The recipient of the shares will become a new shareholder/shareholder in the
company.
Inheriting shares.
, o Shares may be bequeathed under a will.
o The shares will, on the death of the shareholder, automatically vest in the personal
representatives of the deceased. This is known as the transmission of shares.
o The transmittees of the shares, who may only hold them temporarily, will have
limited rights of ownership provided for in the articles of the company.
Insolvency of the shareholder.
o If the shareholder is an individual and goes bankrupt’s property, including his shares,
will automatically vest in a trustee in bankruptcy.
o The trustee will usually hold only limited rights of ownership under the company’s
articles, as his involvement is only temporary.
o The purchaser agrees to become a shareholder by applying to be registered as a new
shareholder.
o The trustee will usually hold only limited rights of ownership under the company’s
articles, as his involvements is only temporary.
The register of members.
We have seen that, irrespective of the method by which a person acquires shares, and
having agreed to become a shareholder, it is only on entry of a person’s name in the register
of members that he becomes a shareholder of the company.
Every company must therefore keep a register of those persons who own shares in it.
Content and form:
o The register may be kept in hard-copy or in electronic form. It must show:
Each shareholders name and address
The date of entry into the register of each shareholder
The number of shares owned by each shareholder
The class of share
The amount paid up on each share.
o The register must be updated whenever necessary to reflect any changes in the
membership of the company.
o If a shareholder leaves the company then the date the shareholder left the company
must also be included on the register.
o The register of members is a very important document, as it records the past and
current ownership of the company, it is therefore a criminal offence by the company
and any officer of the company I default, punishable by a fine, if the register of
members does not contain the correct information.
Entering information.
o Assuming that any rights available to the directors under the company’s articles to
refuse to register a new shareholder are not exercised, the directors should ensure
that the new shareholders name and other details are entered on the register as
soon as possible to allow him to take up his rights as an owner of the company.
o The prospective new shareholders status between the date on which he acquires
the shares and the date on which his name is entered on the register of members, is
that he is beneficially entitled to the share but is not the registered legal owner of
them.
This means that the original shareholder will still be treated as the owner of
the shares by the company and therefore will continue to receive notice of
shareholder meetings and be entitled to attend them and will also receive
dividends f these are paid.
Inspection.
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