Comprobación de los resultados

Types of Capital

The term “capital” may be used in various senses. It may mean the nominal or authorised share capital, the issued share capital, the paid-up share capital, or the reserve share capital of the company. The capital is issued in the form of different classes of shares or stock which are subscribed by the members. Stock has been defined as “simply a set of shares put together in a bundle” (Morrice v. Aylmer (1875)). Paid-up shares may be converted into stock. For example, a company which has 10,000 paid-up £1 shares may convert them into £10,000 worth of stock. If shares are converted into stock, the value of the holder’s stake in the company remains the same, although it is expressed in different terms, e.g. a person who formerly held 100 shares of a nominal amount of £1 each will now hold a nominal amount of £100 worth of stock.

We shall now consider briefly the different types of share capital: (a) Nominal or Authorised Capital

The Memorandum of Association sets out the maximum amount of capital which the company is authorised to issue, although a company need not issue capital to the full amount authorised unless, or until, it wishes to do so. The company’s nominal or authorised capital depends on its business requirements.

(b) Issued Capital

This is that part of the company’s nominal capital which has been issued to the shareholders. (c) Paid-up Capital

This is the proportion of the issued capital which has been paid up by the shareholders. The company may, for example, have a nominal capital of £500,000 divided into 500,000 shares of a nominal amount of £1 each, of which £400,000 is issued (i.e. 400,000 of the shares have been issued) and only £100,000 is paid up because the company has, so far, required only 25p to be paid up on each share.

(d) Uncalled Capital

Uncalled capital is the balance of the issued capital and it can be called up at any time by the company from the shareholders.

(e) Reserve Capital

This is that part of the uncalled capital which a company has, by special resolution, determined shall not be called up, except in the event and for the purposes of the company being wound up.

Shares

A share may be of any chosen denomination, e.g. £5, £1, 50p. This is known as the nominal value, and should not be confused with the actual price paid. A share originally issued for £1 may increase in value, so that the market price becomes £3 or more, or it may decrease in value, so that the market price is only a few pence. The nominal value always remains the same and has little significance, whereas the market price depends on whether investors consider that the future prospects of the company are good or bad.

When shares are issued, they need not necessarily be paid for in full. Sometimes the company does not require to use the whole amount represented by the share capital at the time of issuing the shares

and, consequently, £1 shares may be paid as to 50p only, the balance remaining payable on “call” from the company when it requires the funds.

The liability of the shareholder is limited to paying the market or issue price (or any unpaid amount of “call”) of his shares. He cannot be required to contribute further to the company’s debts, even though it is hopelessly insolvent.

This is the meaning of the term “limited liability”, which is a basic principle of company law. In other words, once the shareholder has purchased fully-paid shares, he is under no liability whatsoever for the debts of the company. If he has purchased partly-paid shares, his liability is limited to the unpaid portion of the nominal value; if the shares are nominally £1 each and 75p was paid on issue, he is liable to pay no more than 25p per share when requested to do so by the company. Note that we are talking about the nominal value of partly-paid shares; the market price varies according to demand and supply, and the shareholder may have paid 60p, or even £1.25, each to purchase the shares, but this does not affect his liability for 25p each.

The shares which make up the capital of the company are usually of two main types; either

preference shares, which entitle the holder to be paid a dividend at a fixed rate per cent before any other dividend is payable, or ordinary shares, which are entitled to distribution of a dividend out of the remaining profit, the rate of dividend being decided each year according to what the company can afford. In the event of a winding-up, the company’s preference shareholders usually carry the right to the return of capital before the ordinary shareholders, who are dependent upon the assets available. Alteration of Capital

A limited company with a share capital, if so authorised by its Articles, may alter the conditions of its Memorandum by:

! Increasing its share capital by new shares; or

! Consolidating and dividing all or any of its share capital into shares of larger amount than its existing shares; or

! Converting all or any of its paid-up shares into stock, or reconverting stock into paid-up shares of any denomination; or

! Subdividing all or any of its shares into shares of smaller amount than is fixed by the Memorandum; or

! Cancelling shares which have not been taken or agreed to be taken by any person. All these powers require for their exercise a resolution of the company in general meeting.

Meetings

Classification

General (i.e. shareholders’) meetings of companies are of three kinds. A statutory meeting must be held by every public limited company with a share capital, between one month and three months after it becomes entitled to commence business. Annual general meetings must be held each calendar year. All other meetings are extraordinary general meetings, and may be called by the directors whenever they think fit, but the Act makes special provisions, obliging the directors to call such a meeting where a certain proportion of the shareholders make a requisition.

Statutory Provisions

There are detailed statutory provisions concerning a number of matters in connection with the calling and conduct of meetings, including the following:

! A specified minimum notice of meetings must be given to all the members.

! The notice must state whether it is proposed to transact any “special business” at the meeting and, if so, it must state the nature of such special business. (This is to protect members from the danger of allowing important changes in the company’s structure or policy to be made in their absence.)

! No business can be transacted unless a quorum is present.

! Provisions are made with regard to the duties and powers of the chairman of the meeting (usually the chairman of the Board of Directors).

! There are rules governing voting. Voting may be by show of hands or (on the demand of any person present and entitled to vote) by poll. In the latter case, members may vote by proxy. (A proxy is a written instrument entitling another to vote in a member’s place, and the Act makes detailed provisions concerning voting by proxy.)

! Special provisions are made with regard to the three kinds of resolutions that may be passed at meetings – ordinary, extraordinary and special. These are outside the scope of your course. By the rule in Foss v. Harbottle (1843), the court will not interfere at the suit of a member or a minority of members where there is a wrong done to a company itself or an irregularity in its internal management, if such action is capable of confirmation by a majority of the members. However, there are certain exceptions to this rule, e.g. a minority may sue to prevent the company from acting illegally or ultra vires, or from perpetrating a fraud on the minority of members.