COMPANIES AND SECURITIES
LAW
77947
Week 5
1
WEEK 5 TOPIC
Shareholders/members

Share Capital
Membership
Shareholders’ Meetings


2
NATURE OF SHARES
¢  A share is a proportional interest of a shareholder in
the net worth of the company
—  s 1070A
¢  Pilmer v Duke Group
—  “Once issued, a share comprises a collection of
rights and obligations relating to an interest in a
company of an economic and proprietary character,
but not constituting a debt”
¢  Share options, stock, bearer shares and stapled
security:
—  See LHW 8.15 – 8.30
3
SHARE CAPITAL
¢  Amount paid on the issue of shares
—  No longer “authorised capital” and “par value”
¢  Fully and partly paid shares
—  s 254A(1)(c)
—  reserve or uncalled capital: LHW 8.45
—  ss 124(1)(e) and 169(3)(f)
§  Consideration for issue of shares (LHW 8.105):
§  Cash
§  Other assets
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ISSUE OF SHARES
¢  Contractual rules
¢  Restrictions on allotment
¢  Validation of improper issue
5
CLASSES OF SHARES
¢  What are class shares?
—  Commonality of interests : Crumpton v Morrine
Hall (LHW 8.190)
¢  Ordinary and Preference Shares
—  Preference
¢  Fixed preferential dividend
¢  Other rights vary
—  Ordinary
¢  Non-fixed non-preferential dividend
¢  Other classes?
6
RIGHTS OF PREFERENCE
SHAREHOLDERS
¢  Types of rights
—  Voting
—  Participating
—  Cumulative
—  Redeemable – s 254A
¢ Fully paid
¢ Out of profits or fresh issue of shares
¢  Setting out their rights
—  Sections 254A(2) and 254G(2)
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VARIATION OF CLASS RIGHTS
¢  How to vary or cancel class rights:
—  See Table 8.1
¢  Deemed variation rules:
—  See Table 8.2
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SHARE CAPITAL TRANSACTIONS
¢  Reasons for having the rules:
—  Protect creditors
—  Prevent fraud
¢  The rule in Trevor v Whitworth
—  Limited liability companies must maintain their issued
share capital
¢  Corporations Act prohibition – s 259A
—  A company must not acquire shares in itself except
where permitted
—  Supported by 259C, which prevents “indirect
acquisitions”, issuing or transferring shares to company
controls (LHW 8.315)
—  Also supported by financial assistance rules
9
PERMITTED SHARE CAPITAL
TRANSACTIONS
¢  Share capital reductions (LHW 8.230):
—  Fair and reasonable to shareholders as a whole; and
—  Does not materially prejudice ability to pay creditors;
and
—  Is approved by shareholders
¢  Share buy-backs (LHW 8.270, 8.275).
—  Does not materially prejudice ability to pay creditors;
and
—  Statutory procedures: see Table 8.3. Note the different
types of buybacks allowed

Why would a company buyback its shares? LHW 8.275 10
FINANCIAL ASSISTANCE
¢  Company cannot provide financial assistance for acquisition
of its own shares (see cases 8.335-8.380 LHW)
—  Lending money
—  Guaranteeing the loan
—  Providing own assets as security
¢  Exceptions:
—  Does not materially prejudice shareholders; or
—  Approved by shareholders; or
—  Exempt under 260C: See table 8.4
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WEEK 5 TOPIC
Shareholders/members

Share Capital
Membership
Shareholders’ Meetings


12
BECOMING A MEMBER AND THE
REGISTER OF MEMBERS
¢  Consenting to membership in the application for
registration
¢  Register of members
—  Right of inspection
—  Prohibited use
—  Significance
—  Correction
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MEMBERSHIP
¢  Share certificates: s 1070C(2)
¢  Transfer of shares: s 140(2)
—  Instrument of transfer: s 1071B(2)
—  Procedure: 1072F(2)
—  Validation of irregular transfers: 1322(4)
—  Unregistered transfers: 1072E(10)
¢  Trust relationship
¢  Liabilities of membership: LHW 9.255
¢  Cessation of membership:
—  Forfeiture of shares
—  Surrender of shares
—  Company Lien 14
RESTRICTIONS OF TRANSFER OF
SHARES
¢  Directors discretion to refuse transfer. Does not
apply:
—  Transmission on death or bankruptcy
—  Compulsory transfer by court order
—  Retiring trustee to new trustee
¢  Refusal to transfer
—  1072G – discretionary, or 1071F(3) – not fully paid
up and there is a lien
—  1072E: notice
—  1071F: challenge where no cause to refuse
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WEEK 5 TOPIC
Shareholders/members

Share Capital
Membership
Shareholders’ Meetings


16
TYPES OF MEETINGS
¢  Annual general meeting (AGM). Required:
—  18 months after registration
—  At least once every financial year, within 5 months
at end of financial year
—  Strict liability offence if fail
—  Only applies to public companies, and only if they
have more than one shareholder
¢  Extraordinary general meeting
¢  Class meeting (LHW 21.25)
¢  Adjourned meeting (LHW 21.30)
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BUSINESS OF THE AGM
¢  Can include following (even where no notice):
—  Consideration of auditors’, directors’ and financial
reports. These are required to be tabled under s
317
—  Election of directors
—  Appointment of auditor
—  Fixing auditor’s remuneration
¢  Questioning:
—  Management of company: s 250S
—  Remuneration report: s 250SA
—  Auditors’ report: 250PA (questions are written)
¢ Auditor to respond: 250T(1)(b) 18
WHO CAN CALL MEETINGS?
¢  Directors – 249C
—  Any one director may do this
¢  Directors at request of 5% of shareholders:
—  Notice given to directors under 249D
—  Must be called within 21 days, and meeting be not less than 2
months after request
¢  Shareholders after failure to call under 249D: At least half of the
5% shareholders
—  Company must assist, and pay all reasonable expenses: s
249E
—  Directors reimburse company
¢  Shareholders with 5% votes: 249F
¢  By Court order: 249G (usually deadlock, failure of forum or
inconvenience)
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NOTICE OF MEETINGS
¢  Amount of notice:
—  21 days
—  Constitution may specify longer notice
—  28 days for listed companies
—  Shorter notice: 95% of shareholders
¢  Who is notice sent to?
—  Each person entitled to vote, and every director
¢  Content of notice:
—  Place, date, time, technology
—  General nature of business
—  Special resolutions
—  Appointment of proxies
—  Note that it cannot be misleading: see Fraser v NRMA
(LHW 21.100) 20
PROCEEDINGS AT MEETINGS
¢  Use of technology
¢  Quorum: At least 2 (RR)
¢  Chairing the meeting
¢  Voting: show of hands v poll
¢  Proxies: Rules mandatory for public (RR for private)
—  Right to appointment
—  Company must provide notice, to all shareholders
—  Must be signed
—  Must be received by company 48 hours before meeting
—  “directed” v “undirected”
—  Multiple proxies
¢  Corporate representatives 21
RESOLUTIONS OF THE GENERAL
MEETING
¢  Ordinary and special resolutions
¢  Requirement for special resolution in some instances:
—  Amend constitution
—  Reduce its share capital on selective basis
¢  Resolutions without meetings:
—  Proprietary companies – circulating resolution
—  Sole shareholder companies
¢  Informal resolutions: Duomatic principle (see LHW
21.185)
¢  Resolutions proposed by shareholders – 249N:
—  100 shareholders, or 5% of vote
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MINUTES OF MEETINGS
¢  Minutes:
—  Shareholders’, directors’ (board and subcommittee)
meetings: 251A
—  Details of resolutions and proceedings of meetings,
also resolutions passed without meetings
—  Within 1 month, signed by chair of that or next
meeting
—  Kept at registered office, principal place of
business or other approved site
—  Shareholder can inspect
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IRREGULARITIES
¢  Proceedings are not invalid merely because of a
“procedural irregularity”, unless court of opinion that
may cause substantial injustice which cannot be
remedied – s 1322
—  Proceedings: does not include nomination for election as
a director
—  Procedural irregularity includes absence of quorum or
time. However, does not include amending constitution
without proper notice to shareholders – automatically
invalid
—  Failure of notice to individual shareholder: s 1322(3)
and (3A) – can apply to set aside resolution
¢  See also LHW 21.220, for other ways to validate acts
after irregularity
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WEEK 5 TOPIC
Shareholders/members

Share Capital
Membership
Shareholders’ Meetings