5 In relation to company law explain the meaning of the following:
(a) ordinary shares. (3 marks)
(b) preference shares. (3 marks)
(c) debentures. (4 marks)
(10 marks) 5 (a) Ordinary shares
As defined in Borland’s Trustees v Steel (1901) a share:
‘…is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place,
and of interest in the second…’
The nominal value of the shares held represents the maximum liability of a shareholder in a limited liability company.
However, the actual liability of a shareholder is the amount remaining unpaid on any shares held. This difference arises in
the following circumstances. When companies issue shares they may not require the full nominal value of the shares to be
paid at once. This allows the company the possibility of raising further capital from its members as it becomes necessary in
the future. The amount already paid to the company is referred to as called-up capital. Any uncalled capital represents the
amount of potential liability. If the shares are fully paid up then the shareholder has no further liability towards meeting the
company’s debts. In regard to return, shares enjoy an advantage of other securities. If the company is profitable, not only will
they enjoy dividend payments but the market value of their shares will go up. On the other hand if the company does not do
well, they may well not receive any payment and the value of their shares will diminish.
(b) Preference shares represent a more secure form of investment than the ordinary share. The reason for this is that preference
shares receive a fixed rate of dividend before any payment is made to the ordinary shareholders and usually they enjoy priority
over ordinary shares with regard to repayment of capital. The actual rights enjoyed by the preference will be stated in the
company’s articles of association. Dividend rights in relation to preference shares are usually cumulative, which means that
a failure to pay the dividend in one year has to be made good in subsequent years. Although, as with ordinary shares, the
holders of preference shares are members of the company, their voting rights are restricted to any period when their dividends
are in arrears.
(c) Debentures are documents that acknowledge a company’s borrowing, although the term has been extended to cover the loan
itself. As debenture holders lend money to the company they are its creditors, they are not members. As creditors they are
entitled to receive interest, whether the company is profitable or not. It may even be necessary to use the company’s capital
to pay the debenture interest. Share dividends on the other hand must never be paid from capital. It is usual for the company
to provide security for the amount it has borrowed by issuing debentures. There are two methods of securing debentures: by
means of a floating charge, or by means of a fixed charge, both of which have to be properly registered. In the case of a
floating charge the security is provided by all of the company’s property, some of which may be continuously changing, such
as stock-in-trade. The charge only crystallises, i.e. fixes on the specific property, when the company commits some act of
default, and until then it is free to deal with the property in its ordinary course of business. The disadvantage of floating
charges are that they come after fixed charges when it comes to paying a company’s debts, so if all the assets are used to
pay off those prior debts, there may well be nothing left to pay the holders of the floating charges. | 
发表于 2008-10-11 12:47
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