The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 164. Lien on shares
(1) A company has a first and paramount lien on every share, (not being a fully paid share) for all money (whether currently payable or not) called or payable at a fixed time in respect of that share, and the company also has a first and paramount lien on all shares (other than fully paid shares) standing registered in the name of a single person for all money presently payable by him or his estate to the company, but the directors may at any time declare any share to be wholly or in part exempt from the provisions of this subsection.
(2) A company’s lien, if any, on a share shall extend to all dividends payable on, and any bonus shares issued in relation to such share.
(3) A company may sell, in such manner as the directors think fit, any share on which the company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is currently payable, nor until the expiration of 14 days after a notice in writing, demanding payment of such part of the amount in respect of which the lien exists as is currently payable, has been given to the registered holder of the shares, or the person entitled to them by reason of his death or bankruptcy.
(4) For the purpose of giving effect to any such sale, the directors may authorise a person to transfer the shares sold to the purchaser of the shares and the purchaser shall be registered as the holder of the shares comprised in any such transfer.
(5) The purchaser is not bound to see to the application of the purchase money and his title to the shares is not affected by any irregularity or invalidity in the proceedings in reference to the sale.
(6) The proceeds of the sale of any share pursuant to this section shall be received by the company and applied in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue, if any, shall (subject to a like lien for sums not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale.
Section 165. Forfeiture of shares
(1) If a member fails to pay any call or instalment of a call on the day appointed for payment, the directors may, thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of the sum of the call or instalment as is unpaid, together with any interest which may have accrued.
(2) The notice shall state a further day (not earlier than the expiration of 14 days from the date of service of the notice) on or before which the payment required by the notice is to be made, and it shall state that in the event of non-payment at or before the time appointed, the shares in respect of which the call was made are liable to be forfeited.
(3) If the requirements of the notice as is mentioned in subsections (1) and (2) are not complied with, any share in respect of which notice was given may, at any time thereafter, before the payment required by the notice is made, be forfeited by a resolution of the directors to that effect.
(4) A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the directors think fit, and at any time before a sale or disposition, the forfeiture may be cancelled on such terms as the directors think fit.
(5) A person whose shares have been forfeited ceases to be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the company all money which, at the date of forfeiture, were payable by him to the company in respect of the shares, but his liability ceases when the company receives payment in full of all money in respect of the shares.
(6) A statutory declaration that the declarant is a director or the secretary of the company, and that a share in the company has been duly forfeited on a date stated in the declarations, is prima facie evidence of the facts stated in it as against all persons claiming to be entitled to the shares.
(7) The company may receive the consideration, if any, given for the share on any sale or disposition of it and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of, and he shall thereupon be registered as the holder of the share, and is not bound to see to the application of the purchase money, if any, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.
(8) The provisions of this section as to forfeiture apply in the case of non- payment of any sum which, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if the same had been payable by virtue of a call duly made and notified.
Section 166. Power to vary rights
(1) If at any time the share capital of a company is divided into different classes of shares under section 143, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the company is being wound up, be varied—
(a) in accordance with the provision in the company’s articles for the variation of those rights ; or
(b) where the company’s articles contain no such provision, with the consent, in writing, of the holders of three- quarters of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class.
(2) To every such separate general meeting as mentioned in subsection (1), the provisions of this Act relating to general meetings apply, but the necessary quorum shall be two persons at least holding or representing by proxy one- third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll.
(3) The rights conferred upon the holders of the shares of any class issued with preferred or other rights are not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.
(4) Any proposed amendment of a provision contained in a company’s articles for the variation of the rights attached to a class of shares, or the insertion of any such provision into the articles, shall be treated as a variation of those rights and shall require the consent, in writing, of the holders of three-quarters of the issued shares of that class, or the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class, before the procedure for the amendment of the articles can proceed.
Section 167. Application for cancellation of variation
(1) Where in pursuance of section 166, the rights attached to any class of shares are at any time varied, the holder of at least 15% of the issued shares of that class, being persons who did not consent to or vote in favour of the resolution for the variation, may apply to the Court to have the variation cancelled, and, where any such application is made, the variation shall not have effect, unless it is confirmed by the court, and for the purpose of this section, any share in the company’s share capital that are held by the company as treasury shares shall not be taken into account for the purpose of computing the aggregate per cent of shares held by holders seeking to make an application to the Court.
(2) An application to the court under this section shall, in a proper case, be made within 21 days after the date on which the consent was given or the resolution was passed, as the case may be, and may be made on behalf of the shareholders entitled to make the application or by such one or more of them as they may appoint in writing for the purpose.
(3) If on any such application the court, after hearing the applicant and any other persons applying to it to be heard and appearing to be interested in the application, is satisfied that the variation would unfairly prejudice the shareholders of the class represented by the applicant, the Court, having regard to all the circumstances of the case, may disallow the variation, and shall, if not satisfied, confirm the variation.
(4) The decision of the Court on any such application is final.
(5) The company shall, within 15 days after the making of an order by the Court on an application to it under this section, forward a copy of the order to the Commission and if default is made in complying with the provisions of this subsection, the company and each officer of the company is liable to such fine as the Commission shall specify in the regulation for every day during which the default continues.
(6) In this section, “variation” includes abrogation, and cognate expressions are construed accordingly.
Section 168. Right of a preference share to more than one vote
(1) Notwithstanding the provisions of section 140, the articles may provide that preference shares issued after the commencement of this Act shall carry the rights to attend general meetings and on a poll at the meetings, to more than one vote per share in the following circumstances, but not otherwise, but upon any resolution—
(a) during such period as the preferential dividend or any part of it remains in arrears and unpaid, such period starting from a date not more than 12 months or such lesser period as the articles may provide, after the due date of the dividend ;
(b) which varies the rights attached to such shares ;
(c) to remove an auditor of the company or to appoint another person in place of such auditor ; or
(d) for the winding-up of the company or during the winding-up of the company.
(2) Notwithstanding the provisions of section 140, any special resolution of a company increasing the number of shares of any class, may validly resolve that any existing class of preference shares shall carry the right to such votes additional to one vote per share as is necessary in order to preserve the existing ratio which the votes exercisable by the holders of such preference shares at a general meeting of the company bear to the total votes exercisable at the meeting.
(3) For the purposes of subsection (2), a dividend is deemed to be due on the date appointed in the articles for the payment of the dividend for any year or other period, or if no such date is appointed, upon the day immediately following the expiration of the year or other period, and whether or not such dividend shall have been earned or declared.
Section 169. Construction of class rights
In construing the provisions of a company’s articles in respect of the rights attached to shares, the following rules of construction shall be observed—
(a) unless the contrary intention appears, no dividend is payable on any shares unless the company resolves to declare such dividend ;
(b) unless the contrary intention appears, a fixed preferential dividend payable on any class of shares is cumulative, and no dividend shall be payable on any share ranking subsequent to them until all the arrears of the fixed dividend have been paid ;
(c) unless the contrary intention appears, in a winding-up arrears of any cumulative preferential dividend, whether earned or declared or not, are payable up to the date of actual payment in the winding-up ;
(d) if any class of shares is expressed to have a right to a preferential dividend, then, unless the contrary intention appears, such class has no further right to participate in dividends ;
(e) if any class of shares is expressed to have preferential rights to payment out of the assets of the company in the event of winding-up, then, unless the contrary intention appears, such class has no further right to participate in the distribution of assets in the winding-up ; (f ) in determining the rights of the various classes to share in the distribution of the company’s property on a winding-up, no regard shall be given, unless the contrary intention appears, to whether or not such property represents accumulated profits or surplus which would have been available for dividend while the company remained a going concern ; and
(g) subject to this section, all shares rank equally in all respects unless the contrary intention appears in the company’s articles.
Section 170. Shares to be numbered
Each share in a company having a share capital shall be distinguished by its appropriate number : Provided that, if at any time all the issued shares in a company, or all of its issued shares of a particular class, are fully paid up and rank for all purposes, none of those shares need thereafter have a distinguishing number so long as it remains fully paid up and ranks pari passu purposes with all shares of the same class for the time being issued and fully paid up.
Section 171. Issue of share certificates
(1) Every company shall, within two months after the allotment of any of its shares and within three months after the date on which a transfer of any such shares is lodged with the company, complete and have ready for delivery the certificates of all shares allotted or transferred, unless the conditions of issue of the shares otherwise provide.
(2) Every person whose name is entered as a member in the register of members is entitled, without payment, to receive within three months of allotment or lodgment of transfer or within such other period as the conditions of issue provide, one certificate for all his shares or several certificates each for one or more of his shares upon payment of a fee as the directors shall determine.
(3) Every certificate issued by a company shall be under the company’s seal (where the company has a common seal) or otherwise signed as a deed by the company and shall specify the shares to which it relates and the amount paid up on them : Provided that in respect of shares held jointly by several persons, the company is not bound to issue more than one certificate, and delivery of a certificate for shares to one of several joint holders shall be sufficient delivery to all such holders.
(4) If a share certificate is defaced, lost or destroyed, it may be replaced on such term, as to evidence and indemnity and the payment of out-of-pocket expenses of the company of investigating evidence as the directors think fit.
(5) If any company on which a notice has been served requiring it to make good any default in complying with the provisions of subsection (1), fails to make good the default within 10 days after the service of the notice, the Court may, on the application of the person entitled to have the certificate delivered to him, make an order directing the company and any officer of the company to make good the default within such time as may be specified in the order, and the order may provide that all costs of and incidental to the application shall be borne by the company or by any officer of the company responsible for the default.
(6) If default is made in complying with this section, the company and each officer of the company is liable to such penalty as the Commission shall specify in the regulation for every day during which the default continues.
Section 172. Effect of share certificate
(1) A certificate, under the common seal of the company (where the company has a common seal) or otherwise signed as a deed by the company, specifying any share held by any member, is a prima facie evidence of the title of the member to the shares.
(2) If any person changes his position to his detriment in good faith on the continued accuracy of the statements made in a certificate, the company shall be estopped from denying the continued accuracy of such statements and shall compensate the person for any loss suffered by him in reliance on them and which he would not have suffered had the statements been or continued to be accurate.
(3) Nothing in subsection (2) shall derogate from any right the company may have to be indemnified by any other person.
Section 173. Probate, etc., as evidence of grant
The production to a company of any document which is by law sufficient evidence of probate of the will, or letters of administration of the estate, or confirmation as executor, of a deceased person having been granted to some person, shall be accepted by the company as sufficient evidence of the grant, notwithstanding anything in its articles to the contrary.
Section 174. Prohibition of bearer shares
(1) No company has the power to issue bearer shares.
(2) For the purposes of this Act, a “bearer share” means a share which is represented by a certificate, warrant or other document (in any form or by whatever name called) which states or indicates that the bearer of the certificate is the owner of the shares.
What this means
Short answer
A company has a first and paramount lien on shares that are not fully paid, and the directors can forfeit shares for unpaid calls after 14 days’ notice (sections 164 and 165). Class rights can be varied only as the articles provide or with three-quarters consent or a special resolution of the class (section 166). Share certificates must be ready within two months of allotment (section 171), and bearer shares are banned (section 174).
The company’s lien
A company has a first and paramount lien on every share that is not fully paid for all money called or payable at a fixed time on it, and on all such shares registered to one person for money he presently owes the company. The directors can exempt a share. The lien extends to dividends and bonus shares. The company can sell the shares, but only if the sum is currently payable and 14 days have passed after written demand to the registered holder or the person entitled by death or bankruptcy. The buyer’s title is not affected by irregularity in the sale (section 164).
Forfeiture
- If a member does not pay a call on the due date, the directors can serve a notice requiring payment with interest, stating a further date at least 14 days away and that the shares can be forfeited if unpaid (section 165(1) and (2)).
- If the notice is not complied with, the directors can forfeit the shares by resolution. The company can sell or otherwise dispose of them, or cancel the forfeiture before then (section 165(3) and (4)).
- The former holder ceases to be a member for those shares but remains liable for money payable at the date of forfeiture until the company is paid in full (section 165(5)).
- A statutory declaration by a director or the secretary that a share was duly forfeited is prima facie evidence (section 165(6)).
Class rights
Where capital is divided into classes, the rights of a class can be varied in the way the articles provide or, if they say nothing, with the written consent of holders of three-quarters of the class or a special resolution at a separate class meeting. The quorum at that meeting is two persons holding or representing one-third of the class, and any holder can demand a poll (section 166). Issuing further shares that rank equally does not by itself vary class rights, and amending the articles’ variation clause itself counts as a variation.
Holders of at least 15% of the class who did not consent can apply to the court within 21 days to cancel the variation. The court can disallow it if it would unfairly prejudice the class, and its decision is final. The company files the order with the Commission within 15 days (section 167).
Votes, dividends and ranking
Despite the one-vote rule, the articles can give preference shares issued after the Act more than one vote per share in limited situations: while the preferential dividend is more than the permitted period in arrears, on resolutions varying their rights, on removing or appointing an auditor, and on a winding up (section 168). Section 169 sets default rules for construing the articles. Dividends are payable only if declared, fixed preference dividends are cumulative, a preference class generally has no further share in dividends or assets, and all shares rank equally unless the articles say otherwise.
Numbering and certificates
- Each share must be numbered, unless all the shares of a class are fully paid and rank equally (section 170).
- A company must have certificates ready within two months of allotment and three months after a transfer is lodged. A member is entitled to one certificate for all his shares or several certificates on payment of a fee set by directors (section 171). Since the 2023 amendment, certificates can be physical or electronic.
- A certificate under seal, or signed as a deed, is prima facie evidence of title, and a company is estopped from denying statements in it to someone who relied on them in good faith (section 172).
- No company can issue bearer shares (section 174).
Questions and answers
Can a company forfeit a member’s shares?
Yes, for unpaid calls. The directors must first serve a notice giving at least 14 days to pay and warning of forfeiture (section 165).
How are the rights of a class of shares changed?
As the articles provide or, if they are silent, by the written consent of three-quarters of the class or a special resolution at a separate class meeting (section 166).
Who can challenge a variation of class rights?
Holders of at least 15% of the class who did not consent, by applying to the court within 21 days (section 167).
How long does a company have to issue share certificates?
Two months after allotment and three months after a transfer is lodged (section 171(1)).
Can a company issue bearer shares?
No. Section 174 says no company has power to issue them.
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