1. Chapter 8 Shares, Dividend and Securities
This chapter covers the following topics:
Capital Share;
Shares ;
Dividend ; and
Securities

2. Capital Share
The capital share of a company are classified into following:
Nominal capital
Issued capital
Subscribed capital
Called up capital
Paid up capital
Reserve capital

3. Authorized or nominal capital
The Memorandum of Association sets out the maximum amount of capital which the company is authorized to issue.
b. Issued Capital
This is that part of the company’s nominal capital which has been issued to the shareholders.
c. Subscribed capital
Is that part of the company’s issued capital which has been taken up or subscribed by the public.

4. d. Called up Capital This is the part of the issued capital which has been called up on the shares. It’s the total amount called upon the shares issued and which the share-holders continue to be liable to pay as and when called. e. Paid-up Capital This is the proportion of the issued capital which has been paid up by the shareholders. f. Reserve Capital This is that part of the uncalled capital which a company, by special resolution, determined not be called up, except in the event and for the purposes of the company being wound up.

5. Classes of Shares
Shares of the company are classified into different types depending on the different rights and privileges attached with them to attract different types of investors.
preference shares
The highest class of shares a company may create to attract investors. It has the following characteristics:
Holders of preference shares are first to receive payment when dividend declared by the company.

6. They receive fixed rate of dividend and if the company does not pay that fixed rate; it is considered as debt and the company has to pay during winding up of the company.
Holders of preference shares also are the first to receive capital of the company which must be returned to the members after the creditors are paid.

7. Classes of preference shares
Cumulative and non-cumulative
A cumulative preference shares confers a right on its holders to claim fixed dividend of the past and the current year and out of future profits. A non-cumulative preference shares is the opposite of cumulative.
2. Participating and non participating preference shares
Participating preference shares are those which entitled, in addition to a fixed rate of the dividend, to share in the surplus of profit which remains after claims of equity share holders.

8. Non-participating preference shares are the opposite of participating preference shares. 3. redeemable preference shares Subject to article of association, a public limited company may issue redeemable preference shares to be redeemed either at a fixed date or after a certain period of time during the lifetime of the company. 4. Ordinary shares These kind of shares are also called equity shares because holders of ordinary shares take the big share of the dividend and take the big responsibility of financial loss of the company.

9. 5. Corporate shares Shares that the company issues to its employees as fully paid up shares. These shares are issued without voting rights and a value lower than that of ordinary shares 6. Deferred shares or founder’s shares Deferred shares are issued to founders of the company as a reward for the services by the company. They carry right to the residual profit when other shareholders are been paid.

10. Stock
Stock is one unit of a company’ s capital comprising several number of shares put together.
to convert shares into stock the following should be observed :
The company must be limited by shares
Article must authorizes the conversion.
Conversion must be decided by the owners
The shares must those that have been paid fully by the members.
Notice must be given to the registrar of companies.
Share warrant must be substituted with stock certificate.

11. Shares
Stocks
A share is a distinct individual unit of capital in company
A company can issue shares directly
Shares may or may not be fully paid shares
Shares are of equal denomination
Shares cannot be transferred as fractions
Stock is the consolidated values of share capital
Stock cannot be issued directly. Shares are converted into shares
Stock is paid fully.
Denomination of stocks varies
Stocks can be transferred as fractions

12. Alteration of Share Capital
Methods of increasing and reduction of the share of a company:
by issuing new shares
Consolidate and divide its capital shares into shares of larger amount
Convert its shares into stock and vice versa
Shares are divided into small without any alteration of its unpaid value.
Cancel shares which have not been taken
Extinguishing the liability of members in respect of capital not paid up
Reimburse any paid up capital in excess of the wants of company.

13. Procedure to be followed for the increase of capital share:
Special resolution should be passed in a general meeting
Notice must be given to registrar of the companies
Procedure to be followed for the reduction of capital share:
Reducing capital shares of the company must be based on special resolution and confirmed by the competent court.

14. Shares
Farewel defined share as is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with company Act

15. Application and allotments of Shares
An application for shares is an offer by the prospective shareholders to take the shares of the company. Such offers are made on application forms supplied by the company. When an application is accepted, it is called allotment.
Allotment is the acceptance by the company of the offer made by the applicant. Allotment results in a binding contract between the parties.

16. General principles regarding allotment
The provisions of the law of contract regarding the acceptance of an offer apply to the allotment of shares by a company with the following special principles on allotment:
Allotment must an authorized person or committee and should be within reasonable time
Allotment should be communicated to chosen applicant
Allotment should absolute, if not, condition must be fulfilled first
Revocation of offer can be happen anytime before communication of the allotment and vice versa

17. Requirements for allotment
Registration of prospectus
The company must deliver a copy of the prospectus to the Registrar for registration on or before the date of its publication.
Minimum subscription
No allotment shall be made of any share capital of the company offered to the public for subscription unless the amount stated in the prospectus as the minimum amount has been subscribed.
If not received the minimum subscription; all money received from applicants must be returned to the applicants.

18. Return of allotment
A company is required to deliver to the registrar of companies the following for registration after allotment:
complete details of the number and nominal amount of shares.
names, addresses and description of the allottees and the amount paid and unpaid for cash and for any other consideration.

19. Issue of shares at premium
A company issues its shares at a premium when the price at which it sells the shares is higher than their par value.
Amount of premium of the company can only be used for the following purposes:
paying up unissued shares which the company issues later to the member for fully paid shares.
Writing off preliminary expenses of the company.
Writing off expenses, commissions or discount on shares and debentures.
For redemption of any debentures of the company.

20. Issue of shares at discount
A company may issue shares at discount at a price below their per value subject to the following conditions:
the issue must be of a class of shares already issued
It must be authorized by resolution passed in general meeting or sanctioned by court.
Resolution must specified the maximum rate of discount at which shares to be issued.
One year must be passed on the date which the company commenced its business.
Shares of no per value
companies are prohibited issuing shares of no par value.

21. Share Certificate
The company issues a share certificate to those who hold a share of the company.
A certificate under the common seal of the company, signed by one or more of directors, specifying shares held by the member and the amount paid up on the shares shall be prima facie evidence of the title of the member to such share or shares and the amount paid by the holder.
Directors has the power to issue a duplicate certificate with the sign of duplicate if the certificate is proved that it has been lost.

22. Share Warrants
A share warrant is a document which shows that the bearer of the warrant is entitled to the shares specified therein. It is a substitute for the share certificate.
A shares warrant may have coupons attached to it to provide for the payment of future dividends on the shares specified in the warrant.
The shares may be transferred by delivery of the warrant.

23. On issue of a share warrant, the company shall strike out of its register the name of the member. The following particulars shall be entered in the register :
the fact of the issue of the warrant ;
a statement of the shares specified in the warrant, distinguishing each share by its number ; and
the date of the issue of the warrant.
Holder of share warrant has the option to surrender the share warrant for cancellation and then to be issued a share certificate and register his name in the registrar.

24. Comparison between Share Certificate and Share Warrant
Share certificates are issued by both public and private companies.
A share certificate may be issued in respect of partly or fully paid shares
The holder of a share certificate is a registered member of the company
share certificate is transferred only in pursuance of a transfer deed along with the delivery of the share certificate. The transfer of a share certificate must be registered with the company.
share certificates, the company issues dividend warrants to the holders by name
Stamp duty is payable for the transfer of a share certificate.
Only public companies are authorized to issue share warrants
share warrant is issued only when shares are fully paid up.
A share warrant is transferable by delivery only and no transfer deed and registration of transfer with the company is required
Payment of dividend on a share warrant is made by way of coupons attached with it.
no stamp duty is payable in the case of transfer of a share warrant.

25. Transfer of shares
The shares in a company are movable property and they can be transferred in the manner provided by the articles of the company.
A private company with a share capital, by its very nature as provided its restriction on the right of transfer in shares by its articles. Transfer of shares is less strict in a public company.
Method of transferring a share
share warrants are transferred by mere delivery.
share certificates are executed under written instrument of transfer.

26. Transfer of shares Effect of transfer
Until the transferee is registered, the shares are to be held by the transferor as a trustee
The transferee can not exercise the rights as a share-holder
The transferee has an equitable claim to the shares
Transferor is entitled dividends and the obligation to pay any called up shares and then recover from the transferee. The transferor must vote as the transferee directs him.

27. Transfer of shares
Priorities between transferees: when there many transferees, priorities are given to the one who secures registration. Notice of transfer: A notice which is not mandatory is always given to the transferor on transferring his shares that has been signed.

28. Transfer of shares Forged Transfer:
forged transfer is when the transferor signature is forged. Company has to make inquiry on its validity and inform the transferor where he does object then the company proceeds to the registration.
Consequences of forged transfer:
forged transfer is null.
innocent buyer acquires no right to be registered as a share-holder.
the company and innocent buyer entitle to compensation when acting in good faith.

29. Transfer of shares
Blank Transfer A blank transfer is an instrument of transfer signed by the transferor in which the name of the transferee is not filled. But blank transfer does not confer the ownership of shares on the transferee. If he wants to retain the shares, he can fill in his name and date in the transfer deed and get himself registered as shareholder.

30. Transmission of shares
When a registered shareholder dies or becomes bankrupt; his share are transmitted to his legal representative or the Official Assignee or Receiver, This is called transmission of shares. It takes place when a registered shareholder (a) dies or (b) becomes bankrupt.

31. Lien of shares
Company may retain possession of shares for unpaid shares of the share-holder only when that is prescribed in the articles of the company.
Company loses lien on the following:
it registers transfer of shares subject to the lien on the transferee
share-holder pledges his shares to a third party as security for loan.

32. Forfeiture of shares
Forfeiture means depriving a person of his property for some act or omission. Forfeitures of shares means depriving a share-holder’ shares for non payment of calls made.
Forfeiture must be under the following procedure:
it has to made in accordance with the articles
notice given prior to forfeiture
resolution of the board must be passed
forfeiture must be exercised in good faith.
Effects of forfeiture of shares
Member loses his membership of the company
Forfeiture shares may be cancelled, re-allotted or sold as the company sees fit.

33. Surrender of shares
Surrender of share means that the share holder, voluntarily, gave up his share in the company.
Conditions to be observed in surrender of shares:
in case of partly paid shares, surrender is valid and considered as forfeiture.
in full paid shares, the surrendered shares can be re-issued by the company.

34. Dividends and bonus shares
Meaning of dividend: Dividend means the portion of the profits of the company which is allocated to the holders of shares in the company. It also mean the division of realised assets among the creditors and contributories to their respective rights. Declaration of Dividend: Dividend is declared by the company in general meeting through its directors and at rate the recommended by the directors.

35. Dividends and bonus shares
Basis of Dividend: Company pays dividend in proportion to the amount paid up on each share or the nominal value of shares as the articles provide. Mode of payment of the dividend: Dividend is payable only in cash. Profits that has been capitalized by the company may be paid as bonus shares or shares that has not been paid. Dividend may be paid by cheque post to the address of the share-holder or to address of a person that the share-holders direct.

36. Capitalization of profits and Bonus shares
Company may capitalize its profit and does not distribute every year.
If the articles of the company permits; it may convert part of the capitalized profits into share capital to the existing share-holders.
Effect of capitalization
it increases the capital of the company.
the company may issue to share-holders further fully paid shares as bonus share.

37. Capitalization of profits and Bonus shares
Bonus is something given in addition to what usually or strictly due. In company, bonus shares comes in addition, to what the share-holder receive as dividend.
It may be also paid surplus cash which it has no use for the company or by making partly paid shares as fully paid shares.
Condition for issue of bonus share:
It has to be authorized by articles of the company

38. Reserve Fund
It must be recommended by a resolution of the Board of Directors and then approved by the shareholder in general meeting.
A return of issuing bonus shares to members of the company has to be delivered to the registrar of the company
Reserve fund
Company is not bound to distribute all of its profits among the members of the company.
It may reserve part of the profits for other purposes or to pay these reserve funds as a dividend when the company has not made any profit. It may also use to redeem preference shares.