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11. Share Capital I

This chapter discusses the legal aspects of raising equity capital from shareholders, including the nature of shares, class rights, and the transfer of shares. It emphasizes the distinction between legal capital contributed by shareholders and other forms of funding, highlighting the protections for both shareholders and creditors. The chapter also addresses the importance of shareholder rights and the regulations surrounding the issuance and maintenance of company capital.

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11. Share Capital I

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11.

Raising Equity Capital From Shareholders

Sealy & Worthington's Text, Cases, and Materials in Company Law (12th edn)
Sarah Worthington and Sinéad Agnew

p. 662 11. Raising Equity Capital From Shareholders

Sarah Worthington, Downing Professor of the Laws of England and Fellow of Trinity College
University of Cambridge Academic Member, South Square, Gray’s Inn, and Sinéad Agnew,
Catherine Seville Assistant Professor in Law and Fellow of Newnham College University of
Cambridge Associate Member of Serle Court, Lincoln’s Inn

https://doi.org/10.1093/he/9780198830092.003.0011
Published in print: 04 July 2022
Published online: September 2022

Abstract
This chapter considers the legal nature of shares, class rights and dealings in shares. It covers: the legal nature of a share; class
rights and variation of class rights; transfer of shares; competing claims to shares; disclosure of substantial interests in shares;
and valuation of shares.

Keywords: company share, shareholders’ rights, share ownership, class rights, variation of class rights, transfer of shares

Company ‘capital’ and its importance

Attracting and protecting shareholders and creditors

Terminology associated with legal capital

Minimum capital requirements for company formation

Limiting access to shares: directors’ allotment rights and shareholders’ pre-emption rights

Offers to the public to purchase shares and remedies for misleading offers

Collecting in the company’s capital: payment for shares

Company ‘capital’ and its importance

‘Capital’ is a word that can have many meanings. In company law, however, legal capital (or simply ‘capital’)
may be used in a restricted technical sense. Broadly speaking, it is cash (or, less often, the value of the assets)
1
received by the company from investors who subscribe for the company’s shares. The company’s capital, in
this technical sense, is measured in terms of ‘value received’ into the company, rather than the current value
of the assets themselves, since that will change with the business activities of the company. If the company
receives cash in exchange for its shares, for example, the company will use that cash to promote and expand
the company’s business. If the business is successful, the value of the business will increase; if not, it will
decrease.

The value of the company’s legal capital is likely to be far less than the total value of the company’s assets.
Even before the company begins to trade, and certainly once it is up and running, the company is likely to
borrow money from banks and from other lending sources. It is also likely to rely on other sources of credit,
such as debt funding from suppliers who supply the company with goods and services on deferred payment
terms or ‘on credit’. None of this large and small scale ‘debt funding’ is part of the company’s legal capital.
2
Important distinctions exist between the treatment of debt, and the creditors who provide those funds, and
the treatment of ‘equity funding’ (as fundraising by share issues is known) and the shareholders who provide
those funds. Both sources of funds will be deployed in the company’s business, however, and, if the business

p. 663 is successful, ↵ will generate additional company assets by way of retained business profits. These profits
do not form part of the company’s legal capital either. Of course, if the business is unsuccessful and losses are
incurred, the total value of the company’s assets, and hence its capital, may fall below the company’s legal
capital.

Why is such a sharp distinction drawn between legal capital (or contributions from shareholders) and other
assets held by the company? The distinction reflects the special protection provided to creditors by the
company’s legal capital: these sums contributed by the shareholders can be used for the company’s business
operations (which may be successful or unsuccessful), but they cannot be returned to the shareholders by
way of dividend (see Chapter 12). On the other hand, although public companies may engage in significant
equity financing with periodic new share issues, many private companies are formed as ‘£2 companies’, with
an issued capital of only two £1 shares (or something similarly minimal). This is hardly a comfort for
creditors or a source of business financing. In these circumstances, the primary protection afforded to
creditors comes not from the CA 2006 rules on legal capital, but from the insolvency rules. Take a simple
example. Suppose a company is set up with £100,000 in ‘equity funding’ contributed by shareholders, and
£200,000 in ‘debt funding’ provided over time by the bank and other creditors. If the business fails, and the
company is put into insolvency, then whatever remains of the company’s assets (from whatever source) will
be used to repay the company’s creditors, in full if possible, before any of the shareholders are repaid any part
of their contribution to funding the company. In other words, the two types of financiers of the company’s
operation do not share the losses equally. In the example given, suppose the company’s remaining assets
amount to £150,000. The creditors clearly cannot be repaid in full, but they will share all of this sum
(obtaining 75p in the pound), and the shareholders will receive nothing. Of course, in practice the situation is
usually more complicated. There are invariably different types of creditors (some with security provided by

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mortgages and charges, others unsecured, and still others given special privileges and priorities by statute),
and there may be different classes of shareholders (perhaps with different rights when the company goes
into insolvency). And some part of the company’s assets will need to be spent simply in the mechanics of sale
and distribution to those entitled (the expenses of liquidation and receivership). All of this detail is covered
3
later.

The outlook for the shareholder is not all gloomy, of course. If the company is successful, then the
shareholders, not the creditors, will share in the company’s profits. The shareholders will receive dividends
4
(distributions based on company profits), and the value of their shares is likely to increase by the value of
retained profits and enhanced expectations about future profits (so that if they sell their investment to a third
party, they will reap a capital gain). The creditors, on the other hand, are restricted to the scale of return
defined by their contract with the company (eg a loan with specified rate of interest, or a sale of goods with a
built-in profit margin).

Finally, by way of concluding introductory comment, note that contributions to a company’s capital are made
only by shareholders purchasing shares from the company. When these shareholders then sell their shares to
third parties (who will become the new shareholders), they may sell at a price far greater, or far less, than the
price initially paid to the company for the share. But this sale price is received by the shareholders, and,
although it will reflect their personal profit or loss on the investment, it will not alter the company’s legal
capital.

Many shareholders are motivated by the possibility of realising an increase in total shareholder value
comprising capital gain on their share investment and dividends (ie income from the investment), rather

p. 664 than by the attraction of being an ‘owner’ of a ↵ small business (ie by the benefits of management or
voting control). Markets, such as the London Stock Exchange, were originally set up and regulated precisely
to provide for this possibility. Their importance in attracting investors is well recognised by the increasing
5
efforts put into appropriate regulation.

Attracting and protecting shareholders and creditors

The interplay between the rights of shareholders and the rights of creditors is critical to the success of
companies as business entities. A company is a separate legal person. It follows that the claims of the
6
company’s creditors must be met from the company’s assets. The shareholders’ capital contributions
mitigate the risks to which creditors are exposed. The returns for shareholders are proportionately greater if
the company is a success, and proportionately worse if the company is a failure. That is why the cost of equity
funding (in terms of expected total shareholder return) is generally higher than for debt funding (an expected
interest entitlement). In addition, if shareholders are to be attracted to this form of investment, then there
must be appropriate protections of their rights and appropriate limitations on their obligations. And, unless
shareholders are attracted, creditors are unlikely to be forthcoming.

For shareholders, these protections include:

(i)

Page 3 of 32

limitations on the issue of new shares, so that shareholders’ interests in the company are not
unacceptably diluted (pre-emption rights and limitations on the directors’ powers of allotment) (see
‘Limiting access to shares: directors’ allotment rights and shareholders’ pre-emption rights’, pp
668ff);

(ii) protection against misleading inducements to purchase shares (see ‘Offers to the public to purchase
shares and remedies for misleading offers’, pp 673ff);

(iii) protection of the financial rights attached to shares (including protection of ‘class rights’) (see
Chapter 10);

(iv) protection of shareholders’ established and agreed relationships with the company (via shareholder
control over changes to the company’s constitution (see Chapter 2), or by personal claims by
shareholders against the company or its managers, as permitted by common law (under Companies
Act 2006 (CA 2006) s 33) or by statute (eg CA 2006 s 994) (see Chapter 8));

(v) protection of shareholders’ influence over the potential success of the company (via control over the
management, and, sometimes, control over the pursuit of claims on behalf of the company) (see
Chapters 4, 5 and 8).

Only the first two of these are directly associated with the process of raising capital for the company, and are
dealt with in this chapter.

What of the protection provided for company lenders and other creditors? Normal rules of contract law and

p. 665 security law (see Chapters 8 and 16) provide much assistance. Here, ↵ however, we are concerned with the
special protections associated with the acquisition and treatment of company capital. These protective rules
include:

(i) rules requiring the company to have a certain minimum level of capital before it begins trading
(‘minimum capital requirements’) (see ‘Minimum capital requirements for company formation’, p 668);

(ii) rules designed to ensure that the amount of legal capital shown in the company records is in fact
received in full by the company (rules relating to payment for shares) (see ‘Collecting in the company’s
capital: payment for shares’, p 678);

(iii) rules designed to ensure the maintenance of stated levels of legal capital by restricting the freedom of
companies to return assets to its shareholders (‘capital maintenance rules’ and ‘dividend distribution
rules’) (see Chapter 12).

Terminology associated with legal capital

Various terms are commonly used, and need to be understood. These include ‘allotment’ and ‘issue’ of shares,
and ‘authorised’ or ‘nominal’ capital (the latter terms are interchangeable, and are of less concern now that
CA 2006 has abolished the requirement to state this value, although of course it appears in older cases),
‘nominal value’ or ‘par value’ (again used interchangeably), ‘issued capital’ and ‘share premiums’.

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Formally a share is not issued to a shareholder until the investor’s name is registered in the company’s
register of members (CA 2006 s 112(2)). This is when the shareholder acquires the legal title to the share.
Until this has been done the person entitled to the shares is neither a member nor their legal owner. Of
course, there is an earlier stage, where the company enters into a binding contract with the investor to sell a
share in return for payment of the price, and the investor acquires an unconditional right to be included in
the company’s register of members in respect of the shares; a share is then said to be allotted to the investor
7
(CA 2006 s 558).

All companies with shares used to be incorporated with a ‘nominal’ or ‘authorised’ capital, the total amount of
which had to be stated in the memorandum (ie the document which, with the articles, provided the
company’s constitution). This figure had very little practical significance. It merely fixed a ceiling upon the
amount of capital the company could raise by the issue of shares without further formalities. For example, a
company might be incorporated with an authorised capital of £1 million, indicating that it was entitled to sell
£1 million worth of shares to shareholders; in fact it might only issue £500,000 worth of shares, or even only
8
£100,000 worth of shares. Indeed, companies typically plucked large figures out of the air for authorised
capital, since the only significance was to set this notional cap on issues, a cap which could in any event be
increased by ordinary resolution of the shareholders.

The specified authorised capital was required to be divided into shares of a fixed unit value. In other words, a
9
monetary value had (and still has: CA 2006 s 542 ) to be attached to the shares. As a consequence, it is
common to describe a company’s capital as divided into a certain number of ‘£1’ shares, or ‘10p’ shares. We
would then say that the ‘nominal value’ or ‘par value’ of the shares was £1 or 10p respectively.

p. 666 ↵ When the company allots or, later on, issues some of these shares, it is possible to speak of ‘allotted’ or
‘issued’ capital (CA 2006 s 546). The ‘issued capital’ (or, in the case of the first shareholders, the ‘subscribed
capital’) is the sum equivalent to the nominal value or par value of all the shares that have been issued, and
the ‘paid-up capital’ is so much of the issued capital as is represented by money which the shareholders have
in fact paid: there may be an unpaid balance on each share which is not due for payment until a call is made
(although this is rarely the case now; shares are usually issued fully paid, so the issued capital and paid-up
capital are identical). CA 2006 s 547 also defines ‘called-up share capital’, which is the aggregate of paid-up
capital plus capital that has been called up (whether or not paid) plus any defined commitments to pay share
capital at a future date, but which has not yet been called up or paid.

So, in Salomon’s case [2.02], the authorised or nominal capital was £40,000 comprising 40,000 shares of £1
each; the subscribed capital was £7, the total issued capital was £20,007, which was fully paid up, and the
debt capital (a loan secured by the debenture) was a further £10,000.

Note that the ‘issued capital’ is not simply the consideration received by the company for the sale of its shares.
The calculation is more convoluted. The advantage of this, if there is one, is that it enables a creditor to
calculate that if a company has issued 100,000 shares with a nominal value of £1, for example, then the
company’s issued capital is £100,000, and this sum is subject to all the capital maintenance and other
creditor protection rules supplied by company law. In other words, the creditor has an easy basis on which to
assess the company’s legal capital.

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In fact, this easy calculation underestimates the extent to which a creditor is protected. It is perhaps obvious,
given the way the nominal value is determined, that it bears no necessary relationship to the price at which
the shares may be sold. When the company issues shares, it may well sell its ‘£1’ shares at a premium of £0.50
10
to the nominal value, that is, for £1.50, if that is what the market will bear. The ‘legal capital’ rules insist
that the company cannot sell its shares for less than the nominal value (see ‘Collecting in the company’s
capital: payment for shares’, p 525). But if it sells its shares for more than the nominal value, as in this case,
then the £1 (representing the nominal value) received by the company must be allocated to the company’s
‘capital account’, and the £0.50 ‘premium’ to the ‘share premium account’. The creditor is then super-
protected, because the restrictions on the use of both accounts are reasonably similar, although not identical
(see ‘Issue of shares at a premium’, p 527); in other words, the company does not receive a ‘premium’ which it
11
is free to use at will, and the creditor receives buffering protection beyond the company’s strict legal capital.

CA 2006 specifies the acceptable uses of the share premium account. Companies cannot use the account to
write off preliminary expenses (ie expenses incurred in connection with the company’s formation). Apart
from two ‘exceptions’, and two forms of ‘relief’, the account can only be used as if it was a share capital
account. The two exceptions are that the account may be used to write off any expenses incurred, or
commission paid, in connection with the particular issue of shares, and also to pay up new shares to be

p. 667 allotted to existing members as fully paid bonus shares (CA 2006 s 610). The two forms of ↵ relief are
related to mergers and reconstructions, and ensure that undistributed profits are not reallocated to share
premium accounts, thus making them undistributable (CA 2006 ss 611 and 612).

As noted earlier, a company no longer needs to register its authorised capital when it is incorporated. Instead,
the company must provide the registrar with a statement of capital and initial shareholdings. This statement
must contain the following information:

(i) the total number of shares of the company to be taken on formation by the subscribers to the
memorandum;

(ii) the aggregate nominal value of those shares;

(iii) for each class of shares: prescribed particulars of the rights attached to those shares, the total number
of shares of that class and the aggregate nominal value of shares of that class; and

(iv) the amount to be paid up and the amount (if any) to be unpaid on each share (whether on account of
the nominal value of the shares or by way of premium).

One historical point is worth making. It was very common practice in the early days for companies to issue
shares on terms that only a small part of the capital—perhaps only 5 per cent or 10 per cent of the nominal
value—was to be paid up, and so a very large sum of uncalled capital was left in reserve as a kind of ‘guarantee
fund’ for creditors. Such shares were called partly paid shares; and the balance of unpaid capital could
generally be called up by the company (or its liquidators) upon demand. This could have horrendous
consequences for investors in the event of a liquidation (or, worse still, a spate of liquidations, as might occur
in a recession) when the shareholder was obliged to pay up the balance of unpaid capital when there was no
possibility of recovering any value via increased share value or future dividend. It also coloured much of the
thinking in company law matters generally. Nowadays, the whole of the issue price of shares is normally

Page 6 of 32

payable on or soon after allotment, and so partly paid shares are not at all common. In some jurisdictions,
they have been banned altogether, primarily for the sake of simplifying the law, but perhaps also out of a
desire that investors should not be overcommitted with potential liabilities.

➤ Questions

1. When shares in British Telecom plc were sold to the public in 1984, the company was permitted to issue a
simplified prospectus, for the benefit of the ‘wider’ public. This prospectus omitted to state that the nominal
value of the shares was 25p. Why might it have been thought appropriate to withhold this information?

2. The issue price of a 25p British Telecom share was £1.30. Were the shares expensive at that price?

3. If a dividend of 10p is paid on a share of nominal value 25p, does this mean that the investor has done well?

4. What protection is provided to creditors by having shares with a nominal value, and capital and share
premium accounts, that could not be equally well provided by eliminating the concept of nominal value and
simply having a capital account for all the consideration received by a company for issue of its shares? Is even
this protection worth preserving, given that: (i) any sums paid into the capital account can immediately be
used by the company in the pursuit of what may turn out to be disastrous business ventures; and (ii) in most
small private companies, the sums in this account are typically less than £100?

5. Are the exceptions and reliefs that apply in relation to use of the share premium account in accord with a
philosophy that is actually designed to treat in the same way all the consideration received by a company for
issue of its shares?

p. 668 Minimum capital requirements for company formation

A public company must have a nominal value of allotted share capital which is not less than the statutory
‘authorised minimum’ amount fixed by CA 2006 s 761. At present, the prescribed authorised minimum is
£50,000, or the prescribed euro equivalent (s 763), denominated in sterling or euros, but not both (s 765). At
least a quarter of this must be paid up before it begins trading (s 586).

The protection that this minimum delivers to creditors is dubious: the sum is relatively trivial, and is
measured at the time the company commences trading, paying little account to what business risks or
mishaps may happen as business continues. CA 2006 s 656 requires directors of public companies to call a
general meeting to consider what to do if the company’s assets fall to half or less than its called-up share
capital. The equivalent CA 1985 predecessor to this seemed unimportant in practice: well before that stage
some sort of rescue or insolvency procedure was likely to be in place (see Chapter 16).

There is no minimum capital requirement for private companies.

Page 7 of 32

Limiting access to shares: directors’ allotment rights and shareholders’

pre-emption rights

Allotment
There is a risk that directors may use their power of allotment of shares to influence the composition of the
company’s membership, and in particular to ensure that the majority of members support them and will keep
them in office (see ‘Duty to act within powers: CA 2006 s 171’, pp 341ff on directors’ use of power for improper
purposes).

CA 2006 ss 549–551 limit this possibility of abuse by providing as a general rule that it is an offence for
directors to allot shares (or grant options to subscribe for shares or issue securities convertible into shares)
without the authority of the members given either in the articles or by ordinary resolution. This authority
must be renewed every five years.

The exceptions to this general rule relate to: (i) issues of shares to the original subscribers, to an employees’
share scheme or to existing holders of rights to acquire or convert their shares (s 549); and (ii) in the case of a
private company, issues of shares where the company has only one class of share (s 550), although such a
company may restrict its directors’ allotment powers by inserting a provision to that effect in the company’s
articles (s 550(b)).

Since there is now no ‘authorised capital’ limit, a company’s changes to issued capital must be notified to the
registrar at Companies House each time a new allotment is made (s 555).

Pre-emption rights governing the issue of new shares

A pre-emption right is a right of first refusal given to the shareholders of a company to subscribe for any new
shares that the company issues in proportion to their existing shareholdings. In this way, the balance of
control between the respective shareholders can be maintained. A pre-emption right may also prevent the
‘watering’ or dilution in value of existing shares, which will happen if the new shares are issued at a price
which is below their true value.

p. 669 ↵ Since 1980, UK legislation has provided a statutory pre-emption right: see CA 2006 ss 560–577. This
statutory right is given to ordinary shareholders (excluding the company itself as holder of treasury shares),
and applies only to new issues of ‘equity securities’ (s 560).

This right is subject to certain exceptions (issues of bonus shares or shares as part of an employee share
scheme, and issues for non-cash consideration); exclusions (by the articles of private companies);
disapplications (by the articles for private companies with only one class of shares, or generally by special
resolution, or by statute for the sale of treasury shares); and savings (for other rules and for certain older pre-
emption procedures) (see ss 564–577). The wide ambit of these exceptions means that in practice the
statutory provisions do not impose a serious restriction on companies that wish not to be bound by them.

Page 8 of 32

Breach of these provisions does not invalidate the new issue, but generally exposes the company and every
officer who knowingly authorised or permitted the contravention to compensation claims in favour of those
to whom offers should have been made (CA 2006 s 653).

Pre-emption rights governing the transfer of existing shares

Just as shareholders maintain control over power distributions in a company through pre-emption
provisions applying to the issue of new shares, so they also do with transfers of existing shareholdings. Such
pre-emption provisions are typically found in the articles or in a shareholder agreement (see ‘Constitutional
documents: articles of association and the company’s objects’, p 26, and ‘Shareholders’ agreements’, p 254 for
the advantages and disadvantages of these two options). Such restrictions are only possible in private
companies, however; shares listed on stock exchanges must be freely transferable.

A pre-emption provision governing the transfer of issued shares was not triggered by a change in
ownership of the corporate shareholder of those issued shares.

[11.01] Re Coroin Ltd [2011] EWHC 3466 (Chancery Division)

Coroin Ltd was formed for the purpose of acquiring control of four well-known hotels in London. The
original investors were McKillen, the claimant (36.23 per cent), Misland (a company owned by A&A
Investments Ltd, itself owned by Peter Green and his family) (24.78 per cent), Quinlan (35.4 per cent) and
McLaughlin (3.58 per cent). Their interests were governed by a shareholder agreement which granted pre-
emption rights in favour of existing shareholders should any one of the investors wish to sell its interest.

The Barclay brothers (Sir David and Sir Frederick) wished to acquire complete ownership and control of
Coroin. They acquired the interests of Quinlan and McLaughlin, but could not reach agreement with Mr
McKillen. They did, however, purchase (via a corporate alter ego) the issued shares in Misland from A&A
Investments. McKillen held that this acquisition of Misland breached the pre-emption provisions in the
shareholder agreement. The court disagreed, holding that a proper construction of the shareholder
agreement indicated that the sale of the shares in a corporate shareholder of the company did not trigger the
pre-emption provisions.

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DAVID RICHARDS J: A principle applicable to pre-emption articles which has been repeated in the
authorities is that, as the right to deal freely with a share is an important attribute of ownership and
the prima facie right of a shareholder, the existence and extent of any restriction on transfer, such as
pre-emption provisions, must be clearly stated: see in re Smith and Fawcett Ltd [10.12] at 306,

p. 670 Greenhalgh v Mallard [1943] 2 All ER 234 at 237 …In the case of [a shareholder] ↵ agreement, the
court’s function is to discern objectively the meaning of the provision against the relevant
background facts. This fundamental principle applies as much to an ambiguously framed pre-
emption provision as it does to any other. If, applying that approach, the court considers that, on the
proper construction of the agreement, the right of pre-emption has arisen, the court should not
reject it because there is a lack of clarity in the language used.

It is, however, right to say that pre-emption provisions are generally drafted with precision, as befits
provisions dealing with property rights. As appears from authorities to which I later refer,
commonly used phrases have distinct legal meanings and superficially small variations can have
significant legal effects. This is a relevant consideration when construing pre-emption provisions,
particularly when as in this case they are complex and have been professionally drafted, using and
adapting well-known standard provisions… .

Clause 6.1 identifies as the person who may give a transfer notice ‘a Shareholder desiring to transfer
one or more Shares (or any interest therein)’. Each word of significance in that phrase carries a legal
meaning.

First, ‘Shareholder’ is defined in clause 1.1 as ‘any holder of Shares for the time being and shall as the
context permits include any beneficial owner of shares for the time being.’ A ‘holder’ of shares is the
person registered in the company’s register of members as the holder of the shares. He holds the
legal title to the shares. He may or may not own the beneficial interest in the shares, as the second
part of the definition recognises. If company A owns the beneficial interest in shares registered in its
name, it alone is the beneficial owner of the shares. This remains the case even though company A is
wholly-owned by company B or by one individual, in accordance with basic principles of legal
personality: Salomon v A. Salomon & Co Ltd [2.02], JH Rayner (Mincing Lane) Ltd v Department of Trade
and Industry [1990] 2 AC 418.

Secondly, what constitutes a ‘desire’, or an intention, to transfer shares has been considered in a
number of authorities: Lyle & Scott v. Scott’s Trustees [1959] AC 763, Safeguard Industrial Investments
Ltd v. National Westminster Bank Ltd [1982] 1 WLR 589, Theakston v. London Trust plc [1984] BCLC 389.

Thirdly, a ‘transfer’ of shares means the transfer of the legal title to the shares, by providing a signed
stock transfer form or other similar instrument and by registration of the transfer in the register of
members: see Lyle & Scott Ltd v. Scott’s Trustees (supra), Safeguard Industrial Investments Ltd v. National
Westminster Bank Ltd (supra), Scotto v. Petch, Re Sedgefield Steeplechase Co (1927) Ltd [2001] BCC 889
(CA).

Page 10 of 32

Fourthly, ‘any interest therein’ means a proprietary, i.e. beneficial, interest in the shares, as opposed
to the legal title. These words are included so as to broaden the effect of clause 6.1, which without
them would be confined to the legal title. It is nonetheless the language of property, and a precise use
of it.

There can, in my judgment, be no dispute that, read on its own, clause 6.1 has no application to the
case where company A is the legal and beneficial owner of shares in the company and the issued
shares of company A are sold. Such a sale involves no change in company A’s legal and beneficial
ownership of the underlying shares, nor evidences a desire to transfer those shares or any interest in
them.

No doubt for this reason, Mr Miles’ submissions do not start with clause 6.1, but with clause 6.17: ‘No
Share nor any interest therein shall be transferred, sold or otherwise disposed of save as provided in
this clause 6.’

He submits that the words ‘any interest therein’ are, as a matter of language, ambiguous. They may
carry their legally accurate meaning of a proprietary interest or they may carry, as Mr Miles submits
they do, a broader, commercial meaning which would include the sale of a company owning the
shares. [… and, after considering the issues …]

These unambiguous provisions [6.6, 6.1 and 6.15] resolve any ambiguity which may be said to exist
in clause 6.17. The clause must be read as a whole, and the earlier provisions of the clause

p. 671 ↵ show that the reference to an interest in shares in clause 6.17 is to the same direct proprietary
interests as appear in those provisions.

The various commercial considerations on which Mr Miles relies might, if the parties had so wished,
have provided good reasons for including clear provisions to the effect that a disposal of Misland
would trigger the pre-emption procedure. The absence of any such provisions in what is a complex
clause, providing for many eventualities, itself tells against the suggested construction. It is a
reasonable objective assumption that these sophisticated investors in a large commercial venture,
and their advisers, did not overlook the possibility of a sale of Misland, particularly in the light of
both the definition of ‘Shareholder Group’ with its special provisions for Misland and the proviso to
clause 6.15. The absence of provisions dealing with a sale of a corporate shareholder is, objectively
speaking, consistent with a decision by the parties not to include them …

For all these reasons, I conclude that the sale of the share capital of Misland in January 2011 was not
made contrary to clause 6.17 of the shareholder agreement and did not trigger the other
shareholders pre-emption rights. I reach the same conclusion on the articles and do so whether or
not reference may be made to background facts …

[An appeal to the Court of Appeal by Mr McKillen was subsequently dismissed: [2012] EWCA Civ 179,
CA.]

Effect of breach of pre-emption provisions governing the transfer of issued shares.

Page 11 of 32

[11.02] Re Coroin Ltd; McKillen v Misland (Cyprus) Investments Ltd [2013] EWCA Civ 781 (Court of Appeal)

As a further part of the litigation considered in the preceding case, McKillen also argued that the proposed
sale of shares in Misland constituted ‘unfairly prejudicial’ conduct (CA 2006 s 994). This claim too was
dismissed, first by David Richards J then by the Court of Appeal here (see ‘Meaning of “unfairly prejudicial”’,
p 551). In delivering his judgment, Rimer LJ began with a discussion of the operation of pre-emption
provisions. That is extracted here.

Page 12 of 32

RIMER LJ:

157. … [The parties’ agreed pre-emption scheme contains a number of interacting provisions which
provide] that, apart from permitted transfers (which include a transfer to a mortgagee), all transfers
or other dispositions must be made in a manner compliant with the requirements of cl.6: see cl.6.17.
There are, however, questions as to the operation of, and inter-relation between, cl.6.1, 6.6 and 6.17.

158. As for cl.6.1, does the provision that ‘a Shareholder …desiring to transfer …Shares (or any
interest therein) …may at any time give [a transfer notice] to the Company …’ mean that such a
shareholder must give such a notice? I consider that the answer is yes, although it needs a little
explanation. Clause 6.1 does not compel the giving of a transfer notice as soon as a proposing
transferor forms a desire to transfer any shares. A desire formed on Monday may have evaporated by
Friday; and if, in the meantime, no transfer notice has been given, it would be odd if such an
ephemeral desire could result in a shareholder being compelled to give a transfer notice when he no
longer wishes to transfer his shares at all. On the other hand, I regard it as clear that, once the
formation of the desire has moved into the valley of decision intended to be followed by action, the
sense of cl.6.1 is that it is a condition of a valid transfer that the shareholder must first give a transfer
notice for the purpose of activating the pre-emption provisions. If he does not, any attempt by him
to transfer his shares will run into (i) the provisions of cl.6.6, under which the directors are
empowered to deem him to have given a transfer notice; and (ii) in default of an exercise by the
p. 672 board of that power, the provisions of cl.6.17. The answer to the ‘may’ or ‘must’ question is,
therefore, simply that it is a condition of a valid transfer of shares––and of any interest in shares––
that the proposing transferor first gives a transfer notice.

159. Clause 6.6 also raises interpretational questions. It provides that, following the occurrence of
any such events as are referred to in cl.6.6.1–6.6.3, the directors may ‘deem’ the relevant shareholder
to have given a transfer notice in respect of all his shares. Such events include the case in which the
shareholder ‘attempts’ to deal with, or otherwise dispose of, his shares or an interest therein
otherwise than in accordance with the provisions of the shareholders’ agreement.

160. Clause 6.6 provides, however, that the directors can only so deem ‘within a period of one
month after the occurrence of any such event’. The problem here is that it is likely that in many
cases the directors will only learn of such occurrence after the expiration of the one-month period:
the relevant event might, for example, be a non-compliant share transfer which, with a view to
circumventing the cl.6.6 time limit, the parties had deliberately kept secret and of which they had
deferred applying for registration. This raises a question as to whether, in the final paragraph of cl.
6.6, the quoted words mean what they say, namely that the board’s discretionary power is
exercisable only within the specified one-month period; or whether there is any basis for a more
flexible reading to the effect that the one-month period runs from when the directors first have
relevant knowledge.

Page 13 of 32

161. In my view, the words mean what they say. First, as a matter of language, there is no scope for
reading them as meaning anything else; and no basis for an inference that something has gone
wrong with the drafting. It may perhaps not be a very clever piece of drafting, but it is not the court’s
function, by a process of purported interpretation, to improve the scheme that Coroin has chosen to
adopt. Second, that interpretation is anyway unlikely to be injurious to the members’ pre-emption
rights. An attempted transfer, sale or disposition of shares, or of any interest in shares, that is made
without prior compliance with cl.6.1 and slips the net of clause 6.6 does not get away scot-free,
because the effect of cl.6.17 is to strike down any transfer, sale or disposition ‘save as provided by
this clause 6’. That means, in my judgment, that no such transaction will be effective between the
parties unless it has been preceded by compliance with the pre-emption provisions.

162. As to the practical consequences of an attempted, but non-compliant, share transfer, the board
would have no power to register it as it would have been made in breach of the articles. That is
shown by the Court of Appeal’s decision in Tett v Phoenix Property and Investment Co Ltd (1986) 2
B.C.C. 99140. In Emily Hunter v THV Hunter, unreported, 15 January 1934 (‘the Emily Hunter case’, not
apparently cited in Tett’s case (above)), Bennett J. came to a like conclusion in relation to share
transfers made in breach of [pre-emption provisions materially identical to those here, but without
a restriction on dispositions of an interest in shares]. Bennett J. made an order for the rectification of
the registration of the transferees so as to restore to the register the name of the purporting
transferor.

163. Bennett J.’s decision was upheld by the Court of Appeal [and there was no appeal] to the House
of Lords …The Emily Hunter case shows that a purported transfer of shares made in defiance of the
pre-emption provisions of cl.6 will be ineffective.

164. As for an attempted, but non-compliant, disposition of an interest in shares (for example, by a
declaration of trust) …Mr Peter Prescott QC, sitting as a deputy High Court judge of the Chancery
Division in Re Claygreen Ltd; Romer-Ormiston v Claygreen Ltd [2005] EWHC 2032 (Ch); [2006] B.C.C.
440, took that view in relation to [a similar] article that …, at [53]:

‘A share in a company should not be thought of as a tangible object, but as a bundle of rights.
Those rights have existence in virtue of the company’s articles. If Epsom has acquired any
rights in the claimant’s shares, they must be rights recognised in equity alone, for no legal
transfer of the shares has been or could be effected without registration. Now, how can
equity recognise or give effect to a transaction in relation to a bundle of rights which, by
their very nature, do not admit of that transaction, the parties having had notice thereof?’

I agree.

Page 14 of 32

p. 673 165. The result is that I consider that, in a case where there has been no prior compliance with the
pre-emption provisions, cl.6.17 renders ineffective both a purported transfer of shares and a
purported transfer of any proprietary interest in shares. Of course, if, as it should not be, a transfer of
shares were in fact to be registered, Coroin might well have to regard the registered owner as a
member so long as he remains registered. But the other members would in principle be entitled to
ask for the register to be rectified so as to restore the prior position.

➤ Question

This is very protective of existing shareholders and detrimental to third parties purchasing their shares.
What justifies such an approach? Is it just ‘a matter of property’?

Offers to the public to purchase shares and remedies for misleading of
fers

When shares are offered to the public, a prospectus must be published and, additionally, when an application
is made for listing on a stock exchange either a prospectus or listing particulars must be published. There are
special rules about liability for errors or omissions in those documents (see Chapter 14). In practice, however,
the professionalisation of the investment industry and the high standards set both by stock exchanges and by
investment practitioners themselves mean that the chances of a misleading document getting into
circulation in consequence of sharp or sloppy practice have been virtually eliminated.

In what follows, the special rules under the Financial Services and Markets Act 2000 (FSMA 2000) are
ignored, and what is described is the general law applicable to those who have been induced by
misrepresentation to subscribe for shares in a company. These rules, although of general application, are
usually invoked only when the special rules on public offers are inapplicable.

The different remedies available may be summarised as follows:

(i) as against the company, rescission of the contract and consequent rectification of the share register
(for material misrepresentation of any kind);
12
(ii) damages for deceit (for fraudulent misrepresentation);

(iii) damages under the Misrepresentation Act 1967 s 2(2) (in lieu of rescission) and also possibly under s
2(1) (for so-called ‘negligent’ misrepresentation); and

(iv) as against the company, a possible claim in damages for breach of contract, on the basis that the
statements in the prospectus or offer have been incorporated as terms of the contract.

Note that no civil remedy lies against the company at common law for the omission of information required to
be included in the listing particulars or prospectus: Re South of England Natural Gas and Petroleum Co Ltd [1911]
1 Ch 573.

Page 15 of 32

p. 674 Misrepresentation
If a person is induced to enter into a contract by false statements of fact made by the other party, then there is
a misrepresentation, and the innocent party is entitled to rescind the contract. A number of issues may
prevent an allottee of shares from obtaining an appropriate remedy, however. The misrepresentation must
have been made by the other party to the contract (ie by the company), be one of fact and have induced the
contract.

The misrepresentation must have been made by the company.

[11.03] Lynde v Anglo-Italian Hemp Spinning Co [1896] 1 Ch 178 (Chancery Division)

ROMER J: The first question I desire to deal with is this—Assuming that Mr. Waithman [a promoter]
made material misrepresentations to the plaintiff which induced him to apply for the shares, could
the plaintiff, on that ground, hold the company liable, and have the contract set aside? It appears to
me that, speaking generally, to make a company liable for misrepresentations inducing a contract to
take shares from it the shareholder must bring his case within one or other of the following heads:—
(1.) Where the misrepresentations are made by the directors or other [of] the general agents of the
company entitled to act and acting on its behalf—as, for example, by a prospectus issued by the
authority or sanction of the directors of a company inviting subscriptions for shares; (2.) Where the
misrepresentations are made by a special agent of the company while acting within the scope of his
authority—as, for example, by an agent specially authorized to obtain, on behalf of the company,
subscriptions for shares. This head of course includes the case of a person constituted agent by
subsequent adoption of his acts; (3.) Where the company can be held affected, before the contract is
complete, with the knowledge that it is induced by misrepresentations—as, for example, when the
directors, on allotting shares, know, in fact, that the application for them has been induced by
misrepresentations, even though made without any authority; (4.) Where the contract is made on
the basis of certain representations, whether the particulars of those representations were known to
the company or not, and it turns out that some of those representations were material and untrue—
as, for example, if the directors of a company know when allotting that an application for shares is
based on the statements contained in a prospectus, even though that prospectus was issued without
authority or even before the company was formed, and even if its contents are not known to the
13
directors.[ ]

Page 16 of 32

… Now, it appears to me that the plaintiff does not bring his case within any of these heads. Such
misrepresentations, if any, as were made to the plaintiff were made by Mr Waithman, one of the two
promoters of the company. But the company at the time had two directors entitled to act for it, and
Mr Waithman was not a director or general agent of the company. No doubt the promoters had a
great deal to do with the company at the time, and their wishes and views may have been highly
regarded by the directors. But I see nothing to justify me in coming to the conclusion that the
promoters are to be regarded as really constituting the company, or that the directors left everything
in their hands, or were what may be called dummies, or left it to the promoters to do whatever they
pleased in the affairs of the company. Nor was Mr Waithman, when he made the representations he
did make to the plaintiff, authorized to act on behalf of the company in procuring shares or
authorized to make any representations on behalf of the company to the plaintiff or others to induce

p. 675 him or them to apply for shares. The fact that Mr Waithman was ↵ a promoter of the company
did not in itself authorize him to procure shares for the company, or to make representations to the
plaintiff on the company’s behalf …And although the company knew that Waithman was applying to
his friends to get them to subscribe for shares, that did not, in my opinion, make him the company’s
agent, or put the company to inquire as to whether he had made any, and, if any, what,
representations to those friends to induce them to subscribe. In most cases directors must be aware
that subscriptions for shares are obtained through the intermediary of persons interested in the
company, and it would lead to the most astonishing results if that was held sufficient to affect the
directors with knowledge of, or to put them upon inquiry as to, the representations, if any, made by
those persons to the people applying for the shares. The fact that in the case of this company some
applications, including that of the plaintiff, were made on printed forms prepared by the company’s
solicitor does not, in my opinion, make any real difference. Mr Waithman got his forms by applying
to the company’s solicitor, because he wanted his friends to make proper applications for shares. No
authority was given by the directors to the solicitor to supply Mr Waithman with forms, nor can the
directors, by seeing these forms used, be held thereby to have adopted Mr Waithman as their agent
in obtaining applications for shares. The directors did not issue any prospectus themselves or try to
get applications for shares, and, no doubt, because they thought Waithman and Thomson would get
a sufficient number of their friends to take up the necessary number of shares. But this did not, in
my opinion, make Waithman and Thomson the special agents of the company to procure
subscriptions on its behalf, or authorize them to make any representations on behalf of the company
with a view of inducing their friends to subscribe.

And, lastly, this is not a case …coming at all within the fourth head. The application for shares made
by the plaintiff was not one made conditional upon, or to the knowledge of the directors based upon,
any special or other representations made by Waithman. The application was not even, to the
knowledge of the directors, induced by representations by Waithman, though, even if it had been,
whether that would in itself have been sufficient to bring the case within my fourth head or have
entitled the plaintiff to rescind I need not now inquire.

On this ground, therefore, I hold that the action must fail, for in my judgment the plaintiff has not
shewn any ground upon which I can rescind this contract by reason of misrepresentations, if any,
made to him which induced him to apply for these shares.

Page 17 of 32

[And, further, on the questions of fact, Romer J also held that the alleged misrepresentations were
not made out, nor the fact that they had induced the contract.]

➤ Question

The case would now be decided by application of the principles in Meridian Global [3.01]. Would the answer be
the same?

Loss of the remedy of rescission

The allottee will lose the right to rescission if the parties cannot be returned to their pre-contractual positions
(ie if restitutio in integrum is no longer possible; see later), if the contract has been affirmed, if third party
rights have intervened or if the allottee has delayed for too long after discovering the misrepresentation.

Rescission is not possible after an order for winding up has been made, even if the share purchase was
induced by fraud.

[11.04] Oakes v Turquand and Harding (1867) LR 2 HL 325 (House of Lords)

Overend, Gurney & Co Ltd was incorporated in July 1865 to take over the long-established banking business

p. 676 of Overend, Gurney & Co. The prospectus issued to the public concealed ↵ the fact that the business was
insolvent and had been carried on at a loss for some years. Within a year after the incorporation of the
company it stopped payment and went into liquidation. In order to meet the claims of its creditors, large calls
were made on the numerous members of the public who had become shareholders. Many of them combined
to form a defence association, which appointed Oakes (an original allottee of shares) and Peek (who had
bought shares in the market) as representatives to conduct test cases on behalf of all the shareholders. In this
case they claimed that their names should be taken off the list of contributories on the ground that their
contracts to take and to purchase shares, respectively, had been induced by fraud, but it was held that they
had lost the right to rescind.

(In later proceedings (Peek v Gurney (1873) LR 6 HL 377) Peek was again unsuccessful, this time in a claim
against the directors. Among the score or so of other reported cases arising out of the same liquidation, the
best known is Overend, Gurney & Co v Gibb and Gibb (1872) LR 5 HL 480, in which the liquidators failed in a
claim against the directors, alleging that they had been negligent in allowing the company to purchase the
business.)

Page 18 of 32

LORD CHELMSFORD LC: It is said that everything which is stated in the prospectus is literally true,
and so it is. But the objection to it is, not that it does not state the truth as far as it goes, but that it
conceals most material facts with which the public ought to have been made acquainted, the very
concealment of which gives to the truth which is told the character of falsehood. If the real
circumstances of the firm of Overend, Gurney & Co had been disclosed it is not very probable that
any company founded upon it would have been formed. Indeed, it was admitted in the course of the
argument that if the true position of the affairs of Overend, Gurney & Co had been published it would
have entailed the ruin of the old firm, and would have been utterly prohibitory of the formation of
the new. To which the only answer which fairly suggests itself is, ‘Then no company ought ever to
have been attempted, because it was only possible to entice persons to become shareholders by
improper concealment of facts’ …

It is quite clear, therefore, that Oakes might originally have disaffirmed that contract, and divested
himself of his shares, and that he never did any act to affirm it, nor was aware of the true state of the
firm of Overend, Gurney & Co at the time of the formation of the new company, nor until after the
failure …

Such was the position of Oakes when the order for winding up the company was made on 22 June
1866. His name being upon the register of shareholders, was placed (as a matter of course) by the
liquidators upon the list of contributories …

On the part of the creditors, it is said that every person whose name is found upon the register at the
time when the order for winding up is made is a shareholder, and liable to contribute towards the
payments of the debts of the company to the extent of the sums due upon his shares, unless he can
prove that his name was put upon the register without his consent.

Did the appellant then agree to become a member? His counsel answer this question in the negative;
because they say that a person who is induced by fraud to enter into an agreement cannot be said to
have agreed; the word ‘agreed’ meaning having entered into a binding agreement. But this is a
fallacy. The consent which binds the will and constitutes the agreement is totally different from the
motive and inducement which led to the consent. An agreement induced by fraud is certainly, in one
sense, not a binding agreement, as it is entirely at the option of the person defrauded whether he will
be bound by it or not. In the present case, if the company formed on the basis of the partnership of
Overend, Gurney & Co had realised the expectations held out by the prospectus, the appellant would
probably have retained his shares, as he would have had an undoubted right to do. But when the
order for winding up came, and found him with the shares in his possession, and his name upon the
register, the agreement was a subsisting one. How could it then be said that he was not a person who
had agreed to become a member? To hold otherwise would be to disregard the long and well-
established distinction between void and voidable contracts …

p. 677 ↵ [His Lordship then held that the supervening rights of the creditors in a winding up barred the
right of a member to avoid the contract on the ground of fraud. He concluded:] It only remains to
observe that all that has been said with respect to Oakes applies with greater force to Peek, even if
his situation as a purchaser of shares in the market did not preclude him from most of the objections
which have been raised in Oakes’ case.

Page 19 of 32

LORD CRANWORTH and LORD COLONSAY delivered concurring opinions.

Availability of the remedy of damages

Damages are available instead of rescission, or in addition to rescission for consequential losses: (i) at
common law if the misrepresentation was fraudulent (Derry v Peek (1889) 14 App Cas 337): see the important
and detailed analysis of Lord Steyn in Smith New Court Securities Ltd Citibank NA [1997] AC 254; (ii) at common
14
law for negligent misstatement; and (iii) under the Misrepresentation Act 1967, but only between parties to
an induced contract, for any form of misrepresentation, unless the misrepresentor can prove that he or she
had reasonable grounds to believe, and did believe, up to the time the contract was made, that the facts
15
represented were true (s 2(1)).

➤ Notes

1. For over a hundred years, the rule laid down in Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317, HL,
prevented a person who had been induced by fraud to take shares in a company from claiming damages
against the company while he or she remained a member. The same principle was applied where damages for
breach of contract were sought, based on the contract of shareholding: Re Addlestone Linoleum Co (1887) 37
Ch D 191, CA. The juridical basis of this rule was never satisfactorily explained, but it has now been reversed
by statute: CA 2006 s 655. There is one statutory exception: CA 2006 s 735 expressly excludes the possibility
of a claim in damages when a company has broken an obligation to redeem or repurchase shares (but without
prejudice to other remedies, which may include an action for specific performance or an application for relief
under s 994 (unfairly prejudicial conduct) (see ‘Unfairly prejudicial conduct of the company’s affairs’, pp
538ff) or for winding up on the ‘just and equitable’ ground (see ‘Compulsory winding up on the “just and
equitable” ground’, pp 881ff)).

2. In Peek v Gurney (1873) LR 6 HL 377, the House of Lords held that a prospectus should be regarded as
addressed only to those who might become allottees of shares directly from the company, and that it could
not be relied on by someone who had bought shares from another source. FSMA 2000 now imposes civil
liability for breach of the listing particulars and prospectus requirements in favour of any person who has
acquired securities, and this is defined in terms sufficiently wide to include both original allottees and
persons who have purchased shares on the market (see ‘Liability for misleading statements and omissions in
prospectuses’, pp 796ff). In Possfund Custodian Trustee Ltd v Diamond [1996] 2 BCLC 665, Lightman J held that,
in the light of changes in market practice, a person who had bought shares on the market might nowadays be

p. 678 regarded as someone to whom a ↵ prospectus was addressed, particularly if the prospectus made
reference to future dealing on that market. (This judgment also contains an excellent summary of the various
remedies available to a person deceived by misstatements in a prospectus, and their historical development.)

Page 20 of 32

Collecting in the company’s capital: payment for shares

Issue of shares at a discount

16
A company is, in general, forbidden to issue shares at a discount: see CA 2006 s 552 and the following case
extracts. But the professional people and institutions who handle new issues must, of course, be remunerated
for their services, or compensated for taking the risk of an issue not being fully subscribed for by the public
(ie for ‘underwriting’ the issue). Accordingly, CA 2006 s 553 authorises the payment of commissions and
discounts up to a statutory limit (currently 10 per cent), subject to certain safeguards.

A company may not issue shares at a discount.

[11.05] Ooregum Gold Mining Co of India Ltd v Roper [1892] AC 125 (House of Lords)

This action was brought by a holder of ordinary shares to test the validity of an issue of preference shares
which had been made by the directors, in accordance with resolutions duly passed by the members, on the
basis that each new share of £1 nominal value should be automatically credited with 75p paid, leaving an
actual liability of only 25p per share. The transaction was bona fide thought to be the best way of raising
further funds for the company, especially since the ordinary shares stood at a great discount. The House of
Lords held, however, that it was beyond the power of the company to issue the shares at a discount, and that
in consequence the holders were liable for the full nominal amount of the shares.

Page 21 of 32

LORD HALSBURY LC: My Lords, the question in this case has been more or less in debate since 1883,
when Chitty J decided that a company limited by shares was not prohibited by law from issuing its
shares at a discount. That decision was overruled, though in a different case, by the Court of Appeal
in 1888, and it has now come to your Lordships for final determination.

My Lords, the whole structure of a limited company owes its existence to the Act of Parliament, and
it is to the Act of Parliament one must refer to see what are its powers, and within what limits it is
free to act. Now, confining myself for the moment to the Act of 1862, it makes one of the conditions
of the limitation of liability that the memorandum of association shall contain the amount of capital
with which the company proposes to be registered, divided into shares of a certain fixed amount. It
seems to me that the system thus created by which the shareholder’s liability is to be limited by the
amount unpaid upon his shares, renders it impossible for the company to depart from that
requirement, and by any expedient to arrange with their shareholders that they shall not be liable for
the amount unpaid on the shares, although the amount of those shares has been, in accordance with
the Act of Parliament, fixed at a certain sum of money. It is manifest that if the company could do so
the provision in question would operate nothing.

p. 679 ↵ I observe in the argument it has been sought to draw a distinction between the nominal capital
and the capital which is assumed to be the real capital. I can find no authority for such a distinction.
The capital is fixed and certain, and every creditor of the company is entitled to look to that capital as
his security.

It may be that such limitations on the power of a company to manage its own affairs may
occasionally be inconvenient, and prevent its obtaining money for the purposes of its trading on
terms so favourable as it could do if it were more free to act. But, speaking for myself, I recognise the
wisdom of enforcing on a company the disclosure of what its real capital is, and not permitting a
statement of its affairs to be such as may mislead and deceive those who are either about to become
its shareholders or about to give it credit.

I think …that the question which your Lordships have to solve is one which may be answered by
reference to an inquiry: What is the nature of an agreement to take a share in a limited company?
and that that question may be answered by saying, that it is an agreement to become liable to pay to
the company the amount for which the share has been created. That agreement is one which the
company itself has no authority to alter or qualify, and I am therefore of opinion that, treating the
question as unaffected by the Act of 1867, the company were prohibited by law, upon the principle
17
laid down in Ashbury Co v Riche, from doing that which is compendiously described as issuing
shares at a discount.

LORDS WATSON, HERSCHELL, MACNAGHTEN and MORRIS delivered concurring opinions.

➤ Notes and Questions

1. The position in which this company found itself is not at all uncommon: unprofitable trading had led to a
depressed market price for the shares, and the company was seeking an injection of new funds to ‘keep head
above water’ while the directors endeavoured to surmount the immediate financial difficulties and find a way

Page 22 of 32

18
back to profitability. The classical solution of an earlier generation was to issue preference shares, so that
those who provided the new capital ranked ahead of the existing shareholders as regards both income and
capital rights (see ‘Classes of shares and class rights’, pp 624ff). The other possible solution—to issue new
shares ranking pari passu with the existing shares but at a discounted price—is, on the authority of this case,
unlawful in England. Does the rule protect the company’s creditors? Does it protect the existing
shareholders?

2. One way of making such a course of action possible would be for the law to authorise companies to create
and issue no par value shares—something which is permitted in many jurisdictions and, indeed, compulsory
in some. There is, after all, something unreal and simplistic about the concept of a par or nominal value. If the
share in question was originally issued at a premium, or in exchange for a non-cash consideration, it may
never have been worth its face value; and certainly after the date of its issue its market value is never again
likely to bear any relation to the historic figure which was once ascribed to it. If it were lawful for companies
to issue shares of no par value, many of the misunderstandings associated with the concept of a nominal
value would disappear, and in addition it would be possible for a company to issue shares, ranking pari passu,
at a price of £1 in January, £1.05 in February and £0.90 in March (depending on what the market would
stand), without any implication that there was a par value which was being enhanced by a premium or

p. 680 reduced by a discount. Recommendations have been made at different times for such ↵ an innovation to
be made in the UK—for example, by the Gedge Committee (Cmnd 9112, 1954), the Jenkins Committee (Cmnd
1749, 1962, paras 32–34) and the Wilson Committee (Cmnd 7937, 1980, para 735), as well as by professional
bodies—but the response from successive governments has been nil. The CLR also considered the possibility
of allowing (or even requiring) private companies to issue no-par shares. In the end, no change was
proposed.

3. In more modern company law codes where shares of no par value are permitted, the ‘maintenance of
capital’ rules do not apply (see Chapter 12); but the payment of dividends and other distributions to
shareholders, and analogous transactions such as the repurchase by a company of its issued shares, are
permitted only if the company is able to satisfy a statutory ‘solvency test’ at the relevant time. In
consequence, attention is focused on the company’s current financial position rather than on what may be
quite misleading historic costs as shown in the accounts—indeed, the whole business of accounting is made
much more straightforward and meaningful.

Issue of debentures at a discount

There is ordinarily no prohibition on the issue of debentures at a discount, because the ‘maintenance of
capital’ principle does not apply to debt capital. A company may find it attractive to create debentures on
terms which give the holders the option at some later date of converting the debentures into shares at a
predetermined rate of exchange. Such convertible debentures may not be issued at a discount on terms that
they may be immediately exchanged for shares of an equivalent nominal value, for this would be only an
indirect way of achieving an issue of shares at a discount (Mosely v Koffyfontein Mines Ltd [1904] 2 Ch 108).
The rate at which the exchange of securities is to take place must, to be above challenge, represent a realistic
assessment of future trends in the value of money and the market prices in securities.

Page 23 of 32

➤ Questions

1. What might be the attractions of an issue of convertible debentures, rather than a straightforward issue of
shares, for (i) the company, (ii) the investor?

2. The basis of conversion set out in the terms of issue of convertible debentures commonly prescribes a
declining tariff, for example 75 shares for every £100 of debentures converted after three years, 70 shares per
£100 converted after four years, 65 shares per £100 after five years. Why?

Issue of shares at a premium

The rule that shares may not be issued at a discount means that a company which allots a share of nominal
value £1 must get £1 and nothing less for it; but there is no corresponding rule which says that the company
must get £1 and nothing more for it. If investors can be found who are willing to pay the company £1.20 or
£2 or £5 for a share of nominal value £1, the company is free to charge that sum. (Indeed, it may give the
company’s existing shareholders cause for complaint if a new issue of shares is made at par, for that would
19
reduce (or ‘water down’) the value of their shareholdings. )

The excess received by the company over the nominal value of the shares is called a premium, and, as noted

p. 681 earlier, CA 2006 requires such sums to be shown in the company’s ↵ accounts under a separate head, as
the ‘share premium account’. This ensures that these are treated for almost all purposes as capital in the
company’s hands and not in any sense as income or profit: see ‘Terminology associated with legal capital’, pp
665ff.

Shareholders who have paid a premium for their shares have no right to the return of their premium in a
winding up: in the absence of specific provision in the terms of issue, any surplus remaining after the return
of the nominal amount of the shares is distributable on a rateable basis (Re Driffield Gas Light Co [1898] 1 Ch
451).

A company is not bound to issue its shares at a premium even though a price above par could be obtained.

[11.06] Hilder v Dexter [1902] AC 474 (House of Lords)

Immediately after its incorporation, the company issued one-sixth of its shares to selected private persons in
order to obtain working capital. These shares were issued at par on the terms that the allottees should later
have the option to take up further shares at par on a one-for-one basis. Hilder exercised his option at a time
when the shares were worth £2 17s 6d [£2.87] per £1 share. Dexter, another shareholder, sought and obtained
an injunction restraining Hilder and the company from carrying out the agreement on the ground that such
an arrangement was forbidden by s 8(2) of the Act of 1900 [CA 2006 s 582]. The House of Lords reversed this
decision and discharged the injunction.

Page 24 of 32

LORD DAVEY: The advantage which the appellant will derive from the exercise of his option is
certainly not a ‘discount or allowance’, because he will have to pay 20s [100p] in the pound for every
share. Nor is it, in my opinion, a commission paid by the company, for the company will not part
with any portion of its capital which is received by it intact, or indeed with any moneys belonging to
it. But the words relied on are, ‘either directly or indirectly’, and the argument seems to be that the
company, by engaging to allot shares at par to the shareholder at a future date, is applying or using
its shares in such a manner as to give him a possible benefit at the expense of the company in this
sense, that it foregoes the chance of issuing them at a premium. With regard to the latter point, it
may or may not be at the expense of the company. I am not aware of any law which obliges a
company to issue its shares above par because they are saleable at a premium in the market. It
depends on the circumstances of each case whether it will be prudent or even possible to do so, and it
is a question for the directors to decide. But the point which, in my opinion, is alone material for the
present purpose is that the benefit to the shareholder from being able to sell his shares at a premium
is not obtained by him at the expense of the company’s capital …

THE EARL OF HALSBURY LC and LORD BRAMPTON delivered concurring opinions.

LORD ROBERTSON concurred.

Shares may be issued at a premium even though not issued for cash.

[11.07] Henry Head & Co Ltd v Ropner Holdings Ltd [1952] Ch 124 (Chancery Division)

The defendant company was formed to acquire by way of amalgamation the shares of two shipping
companies, and did so by exchanging the shares in these companies for shares in itself of equivalent nominal
value. In this way it acquired assets worth some £7 million in exchange for shares of a nominal value of
£1,175,000. The court held that the difference of just over £5 million had rightly been shown in the
company’s balance sheet as carried to a share premium account.

Page 25 of 32

p. 682 ↵ HARMAN J: The directors have been advised that they are bound to show their accounts in that
way, and not only they but the plaintiffs, who are large shareholders, regard that as a very
undesirable thing, because it fixes an unfortunate kind of rigidity on the structure of the company,
having regard to the fact that an account kept under that name, namely, the Share Premium
Account, can only have anything paid out of it by means of a transaction analogous to a reduction of
capital. It is, in effect, as if the company had originally been capitalised at approximately £7,000,000
instead of £1,750,000.

The question which I have to determine is whether the defendants were obliged to keep their
accounts in that way. That depends purely on s 56 of the Companies Act 1948 [CA 2006 s 610], which
is a new departure in legislation and was, it is said, intended to make compulsory that which had
long seemed to be desirable, namely, the practice of putting aside as a reserve and treating in the
ordinary way as capital cash premiums received on the issue of shares at a premium …

Counsel for the plaintiff company asks who would suppose that a common type of transaction of the
sort now under consideration was the issue of shares at a premium and says that nobody in the city
or in the commercial world would dream of so describing it. It is with a sense of shock at first that
one hears that this transaction was the issue of shares at a premium. Everybody, I suppose, who
hears those words thinks of a company which, being in a strong trading position, wants further
capital and puts forward its shares for the subscription of the public at such a price as the market in
those shares justifies, whatever it may be, [£1.50] a £1 share, £5 a £1 share, or any price obtainable;
and the [50p] or £4 above the nominal value of a share which it acquires as a result of that
transaction is no doubt a premium. That is what is ordinarily meant by the issue of shares at a
premium. The first words of sub-s (1) are: ‘Where a company issues shares at a premium’. If the
words had stopped there, one might have said that the subsection merely refers to cash transactions
of that sort, but it goes on to say ‘whether for cash or otherwise’.

What ‘otherwise’ can there be? It must be a consideration other than cash, namely, goods or assets of
some physical sort.

➤ Note

The general principle expressed in this case remains valid, but CA 2006 (and its predecessors) contain relief
against the application of the share premium restrictions in the case of certain mergers and reconstructions
(ss 611–613), and the Secretary of State has power to make further regulations, either amplifying or
restricting the relief so provided (s 614).

Issue of shares in exchange for property

It is not necessary that shares be allotted for cash. It is very common instead for the issue price to be satisfied
by the transfer to the company of property, such as a business, previously owned by the allottee: this is what
Mr Salomon [2.02] did. Or the new shares may be exchanged for shares in another company: see, for
example, Henry Head [11.07].

Page 26 of 32

Two problems may arise here. If the property taken by the company as consideration is worth more than the
nominal value of the new shares, then the shares will have been issued at a premium, and this will bring into
play the burdensome and restrictive accounting provisions of CA 2006 ss 610ff discussed earlier. If, on the
other hand, the property is worth less than the nominal value of the shares (as may well have been true in Mr
Salomon’s case), then in practical terms the shares will have been issued at a discount, contrary to law.
Creditors who assume that the shares have been paid for in full may then suffer loss, or at least be exposed to
risk, and existing shareholders also may be prejudiced through the ‘watering down’ of their own investment.

p. 683 ↵ The common law leaves this problem to be settled by the business judgement and integrity of the
directors, and courts will normally accept the valuation made at the time of the allotment unless it is shown
to have been made dishonestly or falsely or the contract for allotment is itself set aside for fraud (Re Wragg
[11.08]). This means that the rule against issuing shares at a discount can be circumvented fairly easily, for
challenges to the board’s decisions are rarely mounted, and those that are face the formidable procedural
obstacles of shareholders bringing derivative or personal claims (see Chapter 8): compare the analogous cases
of Pavlides v Jensen [1956] Ch 565 (sale of assets at alleged undervalue) and Prudential Assurance Co Ltd v
Newman Industries Ltd (No 2) [8.24] (purchase of assets at alleged overvalue). The case for some form of
statutory control has always seemed a strong one.

Rules for public companies

Such a step has been taken in regard to public companies, as a result of the Second EU Directive, enacted
nationally in CA 2006 ss 584–587 and 593–609. Some forms of consideration for the allotment of shares are
banned altogether, for example an undertaking to do work for the company in the future (s 585(1)) and an
undertaking of a long-term nature (other than a promise to pay cash) which may take five years or more to
perform (s 587(1)). Other forms of ‘non-cash’ consideration have to be valued by an expert (ss 593–594 and
603), and sometimes a second expert has to certify that the first one is competent (s 1150(2))! Rules of even
greater severity are laid down for subscribers to the memorandum (ss 584 and 598–599). In all, it amounts to
an elaborate and costly procedure that the Act spells out in the most finicky detail: a large sledgehammer to
crack a fairly small nut.

All the finer points of the statutory procedure are not elaborated here. But the strict code of sanctions for any
failure to comply should be noted. The allottee is obliged to pay to the company the nominal value of the
shares and any premium, with interest, regardless of any benefit that the company may already have had (so
that he or she may in effect have to pay for the shares twice over); and, in addition, a subsequent holder of the
shares is jointly and severally liable with the allottee to pay the same amounts, unless the holder is (or has
derived title through) a bona fide purchaser for value without (actual) notice: see ss 588 and 605. The only
relief that those who are caught by these provisions have against what may be potentially a double liability to
pay for their shares is that they have a right to make application to the court and ask for exemption from
some or all of the statutory liability (ss 589 and 606: see Re Bradford Investments plc (No 2) in the Note
following Re Wragg Ltd [11.08]). In addition to these civil consequences, criminal penalties are imposed upon
the company and its officers; and the transactions which infringe the statutory rules, though enforceable by
the company against the allottee, are (by implication, and in the case of a contract with a subscriber to the
memorandum, expressly) unenforceable or ‘void’ as against the company.

Page 27 of 32

There is an exception from the valuation requirement in the case of a takeover in which all or part of the
consideration for the shares allotted is the exchange of shares in the offeree company (s 594(1)–(3)); and it
also does not apply in a merger (s 595).

One last point is worth emphasising: all of these rules apply only to issues by public companies for non-cash
consideration; if the consideration is cash, the rules are not relevant. ‘Cash’ is defined in CA 2006 s 583(3): it
includes undertakings to pay in the future, or to release a liability of the company (the latter is useful in debt
for equity swaps).

It should be remembered that the rules stated here govern public companies only; private companies
continue to be subject to the common law, as declared in the case next cited [11.08].

➤ Questions

1. Fred comes to an arrangement with the directors of XYZ plc that he will subscribe for 200,000 £1 ordinary

p. 684 shares in the company at their par value. He also agrees to sell to XYZ ↵ plc a leasehold shop property for a
price of £200,000. On 1 April the shares are allotted to him in exchange for his cheque, payable to the
company, for £200,000, and on the same day, the leasehold interest in the shop is transferred to the company
in return for the company’s cheque, payable to Fred, for £200,000. What legal issues arise?

2. What do you consider is the policy reasoning behind CA 2006 ss 598–599? Suppose that X and Y are the
promoters of a public company and intend within a few days of its incorporation to transfer a business to it: is
there any need to have regard to ss 598–599 if they take the precaution of ensuring that the memorandum is
subscribed only by two clerks in their solicitor’s office?

3. Why do you think that the legislation requires a copy of the valuation to be sent to the proposed allottee (s
593(1)(c))? If the valuer’s report advises the company that the transferor’s property would be a snip at twice
the price, can the allottee withdraw from the transaction and negotiate for more? If the valuer negligently
overvalues the property, could the allottee sue the valuer in tort?

4. Where there has been an infringement of s 593, could the company and the allottee effectively agree that
the latter should be released from liability under s 593(3) without going to court under s 606?

Rules for private companies

Private company share issues for non-cash consideration.

[11.08] Re Wragg Ltd [1897] 1 Ch 796 (Court of Appeal)

This case indicates that a private company may buy property at any price it thinks fit, and pay for it in fully
paid shares. Unless the transaction itself is impeached (eg on the ground of fraud), the actual value of the
consideration received by the company for its shares cannot be inquired into. Wragg and Martin had sold to
the company on its incorporation their omnibus and livery-stable business for £46,300, which was paid

Page 28 of 32

partly in cash and debentures and partly by the allotment to them of the whole of the company’s original
capital of £20,000 in fully paid shares. The liquidator of the company later sought to show that the value of
the business had been overstated by some £18,000; and he claimed either to be entitled to treat shares
representing this amount as unpaid, or alternatively to charge Martin and Wragg as directors with
misfeasance in connection with the purchase. Both claims failed.

LINDLEY LJ: …That shares cannot be issued at a discount was finally settled in the case of the
Ooregum Gold Mining Co of India v Roper [11.05], the judgments in which are strongly relied upon by
the appellant in this case. It has, however, never yet been decided that a limited company cannot buy
property or pay for services at any price it thinks proper, and pay for them in fully paid-up shares.
Provided a limited company does so honestly and not colourably, and provided that it has not been
so imposed upon as to be entitled to be relieved from its bargain, it appears to be settled by Pell’s
20 21
case, and the others to which I have referred, of which Anderson’s case is the most striking, that
agreements by limited companies to pay for property or services in paid-up shares are valid and
binding on the companies and their creditors …

[If] a company owes a person £100, the company cannot by paying him £200 in shares of that
nominal amount discharge him …from his obligation as a shareholder to pay up the other £100 in
respect of those shares. That would be issuing shares at a discount. The difference between such a
transaction and paying for property or services in shares at a price put upon them by a

p. 685 ↵ vendor and agreed to by the company may not always be very apparent in practice. But the two
transactions are essentially different, and whilst the one is ultra vires the other is intra vires. It is not
law that persons cannot sell property to a limited company for fully paid-up shares and make a
profit by the transaction. We must not allow ourselves to be misled by talking of value. The value
paid to the company is measured by the price at which the company agrees to buy what it thinks it
worth its while to acquire. Whilst the transaction is unimpeached, this is the only value to be
considered …

AL SMITH and RIGBY LJJ delivered concurring judgments.

➤ Notes

1. The pre-conditions in Re Wragg are important: contrast Tintin Exploration Syndicate v Sandys (1947) 177 LT
412 (bad faith); Re White Star Line [1939] Ch 458 (the consideration was patently not of an equivalent value to
the shares).

2. This common law ruling may be contrasted with Re Bradford Investments plc (No 2) [1991] BCLC 688, which
illustrates the operation of the statutory rules governing the issue of shares by public companies for a non-
cash consideration. Here the four members of a partnership had converted a dormant private company into a
public company and transferred the business of the partnership to it in consideration of the allotment to
them of 1,059,000 fully paid £1 ordinary shares. No valuation of the business was obtained, as required by CA
1985 s 103 [CA 2006 s 593]. Two-and-a-half years later, the company, now under independent management,
claimed £1,059,000 from the original partners as the issue price of the shares. The partners applied to the

Page 29 of 32

court under s 113 [CA 2006 s 606] to be relieved from liability to pay this sum. In this they were unsuccessful,
for s 113 places the onus of proving that value was given on the applicants, and they were unable to satisfy the
court that the partnership business had any net value at the time when it was transferred to the company.

➤ Question

What is the purpose of all these rules regulating the ‘price’ of shares? Who, if anyone, do they protect?

■ Further reading
ARMOUR, J, ‘Legal Capital: An Outdated Concept?’ (2006) 7 European Business Organization Law Review 5.

ARMOUR, J, ‘Share Capital and Creditor Protection: Efficient Rules for a Modern Company Law?’ (2000) 63 MLR 355.

DAEHNERT, A, ‘The Minimum Capital Requirement—An Anachronism under Conservation, Parts 1 and 2’ (2009) 30
Company Lawyer 3 and 34.

FERRAN, E, ‘Creditors’ Interests and “Core” Company Law’ (1999) 20 Company Lawyer 314.

MYNERS, P, Pre-Emption Rights: Final Report (URN 05/679) (DTI, 2005).

POPE, P and PUXTY, A, ‘What is Equity?’ (1991) 54 MLR 889.

RICKFORD, J, et al, ‘Reforming Capital’ (2004) 15 European Business Law Review 919.

Notes
1
This is a simplification: as is explained later (see ‘Issue of shares at a premium’, p 680), the total sum received by the
company in exchange for the share may include both a ‘capital’ sum and a ‘premium’ sum. Both of these sums are
subject to substantially similar restrictions on the possible uses the company may make of them, but the ‘company’s
capital’, in the strictest sense, includes only the former sums. Shares are described in Chapter 10.
2
See Chapters 13 and 16.
3
See Chapter 16.
4
See Chapter 12.
5
See Chapter 14.
6
It is not the same with partnerships, where the partners are personally liable for the debts of the partnership (with
limitations on that liability only if the partnership is a Limited Liability Partnership): see ‘Companies and other
business structures’, pp 24ff. Of course, if the company’s directors have caused an unwarranted diminution in the
company’s assets, then the company, not the creditors, can sue the directors, and the recoveries will augment the
company’s assets, and be available for the benefit of the company’s creditors (and its shareholders, if the company is
solvent): see ‘Pursuing claims for maladministration’, pp 484ff. If the company is being wound up, different rules
determine who may sue, and who may be sued: see ‘Statutory framework’, pp 845ff.

Page 30 of 32

7
National Westminster Bank plc v Inland Revenue Comrs [1995] 1 AC 119, 126 (Lord Templeman).
8
And indeed, as indicated later, a sale of ‘£100,000 worth of shares’ might well net the company more than £100,000.
9
And note the permission in s 542(3), subject to s 765, to have share capital denominated in different currencies.
10
And (although this has nothing to do with legal capital) when existing shareholders sell their shares to willing
purchasers, whether privately or on a recognised market, they will again sell at whatever price the market will bear.
This may be more or less than the nominal value of the shares, depending upon the success of the company and the
estimated value of an interest in it.
11
Note that the shareholder does not receive similar benefits: different shareholders may have purchased the same
class of shares for different prices (ie paying different premia for shares of the same par value); if the company goes
into solvent liquidation (ie there are assets to be returned to shareholders), then all shareholders will receive a return
of their capital (ie the nominal capital associated with the share) and share equally in the division of any surplus
profits.
12
The measure of damages is normally the difference between the price that was paid for the shares and their true
value at the time of the transaction, together with any consequential loss. Exceptionally (eg where the defendant’s
fraud has created a false market or was such as to have prevented the victim from realising the shares at that time), a
different value may be substituted: Smith New Court Securities Ltd v Citibank NA [1997] AC 254, HL.
13
This is now modified by Collins v Associated Greyhound Racecourses Ltd [1930] 1 Ch 1, to require that, to the
knowledge of the company or its agents, the contract was made on the basis of particular representations that later
turned out to be untrue.
14
See Hedley Byrne and Co Ltd v Heller and Partners Ltd [1964] AC 465; Caparo Industries plc v Dickman [9.03], but so
far no cases seem to have been brought for misstatements in offers.
15
Under the statute, damages are said to be measured in the same way as for fraud, regardless of the type of
misrepresentation: Royscot Trust Ltd v Rogerson [1991] 2 QB 297, strongly criticised in R Hooley, ‘Damages and the
Misrepresentation Act 1967’ (1991) 107 LQR 547. Leggatt J in Yam Seng Pte Ltd v International Trade Corpn Ltd [2013]
EWHC 111 (QB) also criticised Royscot but concluded that he was nevertheless bound by the Court of Appeal’s decision
unless and until it be overruled: see [207] of the decision.
16
But not debentures: see ‘Issue of debentures at a discount’, p 680.
17
[1875] LR 7 HL 653, HL.
18
As in fact happened in Ooregum [11.05]: soon afterwards, the company struck gold and its ordinary shares rose in
value from 12½p to £2.
19
It may be difficult to show the directors have breached any legal duty to the company (see [11.08]), but the existing
shareholders might complain of unfairly prejudicial treatment (CA 2006 s 994). The statutory pre-emption rights are
designed to help, but do not always apply or meet the problem: see ‘Pre-emption rights governing the transfer of
existing shares’, p 669.
20
(1869) 5 Ch App 11.
21
(1877) 7 Ch D 75.

Page 31 of 32

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11. Share Capital I

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11. Share Capital I

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11.

Raising Equity Capital From Shareholders

p. 662 11. Raising Equity Capital From Shareholders

Company ‘capital’ and its importance

Attracting and protecting shareholders and creditors

Terminology associated with legal capital

Minimum capital requirements for company formation

Collecting in the company’s capital: payment for shares

Company ‘capital’ and its importance

Attracting and protecting shareholders and creditors

For shareholders, these protections include:

Terminology associated with legal capital

(ii) the aggregate nominal value of those shares;

p. 668 Minimum capital requirements for company formation

There is no minimum capital requirement for private companies.

Limiting access to shares: directors’ allotment rights and shareholders’

Pre-emption rights governing the issue of new shares

Pre-emption rights governing the transfer of existing shares

[11.01] Re Coroin Ltd [2011] EWHC 3466 (Chancery Division)

Effect of breach of pre-emption provisions governing the transfer of issued shares.

The different remedies available may be summarised as follows:

The misrepresentation must have been made by the company.

[11.03] Lynde v Anglo-Italian Hemp Spinning Co [1896] 1 Ch 178 (Chancery Division)

Loss of the remedy of rescission

[11.04] Oakes v Turquand and Harding (1867) LR 2 HL 325 (House of Lords)

LORD CRANWORTH and LORD COLONSAY delivered concurring opinions.

Availability of the remedy of damages

Collecting in the company’s capital: payment for shares

Issue of shares at a discount

A company may not issue shares at a discount.

LORDS WATSON, HERSCHELL, MACNAGHTEN and MORRIS delivered concurring opinions.

➤ Notes and Questions

Issue of debentures at a discount

Issue of shares at a premium

[11.06] Hilder v Dexter [1902] AC 474 (House of Lords)

THE EARL OF HALSBURY LC and LORD BRAMPTON delivered concurring opinions.

LORD ROBERTSON concurred.

Issue of shares in exchange for property

Rules for public companies

Rules for private companies

Private company share issues for non-cash consideration.

[11.08] Re Wragg Ltd [1897] 1 Ch 796 (Court of Appeal)

AL SMITH and RIGBY LJJ delivered concurring judgments.

MYNERS, P, Pre-Emption Rights: Final Report (URN 05/679) (DTI, 2005).

POPE, P and PUXTY, A, ‘What is Equity?’ (1991) 54 MLR 889.

© Oxford University Press 2022

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