LAW OF ASSOCIATION 2011-12

Handout #3
Company Financing Introduction to Share Capital

The issue of shares is one of the means by which a company finances its undertaking.
The types of shares generally issued may be ordinary (or in some jurisdictions
common) shares and preference shares.
Ordinary or common shares carry the normal incidents of ownership, that is, the right to
vote, the right to receive dividends and the right to the return of capital on a winding up
of the company. Preference shares carry more advantageous rights including the
preferred right to a fixed dividend.
Preference shares may be cumulative or non-cumulative, participating or nonparticipating and may be redeemable. Where they are cumulative, if the company is
unable to pay the dividend in any year (because there are insufficient or no profits), it
accumulates and is due in the following year together with the dividend for that year, in
priority to any dividend payable to the ordinary shareholders. Where they are noncumulative, if the company is unable to pay the dividend in any year, then the dividend
is never payable but is lost. A participating preference share gives the holder the right to
participate further in the distributed profits along with the ordinary shareholders, after a
certain fixed percentage has been paid on the ordinary shares.
Shares may be issued on terms that they are redeemable. All our jurisdictions expressly
or impliedly permit redeemable shares. 1 It is largely preference shares which are issued
on terms that they may be redeemed but in some jurisdictions it is permissible to issue
redeemable ordinary shares.
Shares constitute personal property as opposed to real property 2 and are transferable. 3
Transfers generally require instruments of transfer, signed at least by the transferor but
usually by both transferor and transferee, to be delivered to the company (or to its
registrar and transfer agent if it has one) unless the transfer takes place by operation of
law. The transfer is registered by the company, the name of the transferee entered in
the register of members of the company and a new share certificate issued in the name
of the transferee. There will likely be the need to pay stamp duty and/or transfer tax on

SeerespectiveCompaniesActsJamaicass.56&62,Belizes.47,St.Kittss.56,Montserrat,Nevis,Antigua
Barbadoss.41,Anguillas.42
2
Jamaicas.74(1),St.Kittss.34(1)(a),Belizes.23(1),Montserrat,Nevis,Antigua,Barbadoss.26(1),Anguillas.28
3
Jamaicass.74(1)&7579,St.Kittsss.34(1)(b)&4243,Belizess.23(1)&2930,Montserrat,Nevis,Antiguass.26(1)
&195199,Barbadoss.26(1)&179183,Anguillas.28(1),CompaniesRegulationsPart3

the transfer prior to registration and this will probably be based on the ad valorem value
of the transaction or shares.
Shares are sometimes required to have a distinctive number, 4 the implication of this
being that when referring to the shares, particularly in sale agreements and transfers,
reference should be made to the distinctive number of each share. Where this applies
the distinctive number(s) will also appear on the relevant share certificate for the
share(s). The share certificate is prima facie evidence of title to the shares. 5
A share is a unit of ownership or of a persons proprietary interest in the company. It
represents an asset that may, subject to certain constraints, be pledged as security for
loans and other financial facilities.
In some jurisdictions (namely, Belize and St. Kitts) shares have a nominal or par value
which is an arbitrary value given to the share by the incorporators of the company and
initially specified in the memorandum of association. 6 In St. Kitts this value is referred to
as the stated value. This nominal value bears no relation to the actual value of the
share but is the minimum amount which may be accepted for the share. In other
jurisdictions, shares no longer have nominal or par value. 7
By issuing shares, a company may raise long-term financing which (unless they are
redeemable) it does not have to repay and which is interest free. The ability to issue
different classes of shares gives the company a wider range of arrangements under
which investors may invest in the company. The difference between an issue of shares
by the company and a sale and transfer of shares by its shareholders should be noted.
Whereas share issues raise financing for the company, offers for sale of shares result in
funds for the relevant shareholders which do not benefit the company.

Jamaicas.74(2),Belizes.23(2),St.Kittss.34(2)(3),Montserrat,Nevis,Antigua,Barbadoss.26(4)(5),Anguilla
s.28(4)
5
Jamaicas.80,Belizes.24,St.Kittss.50,Montserrat,Nevis,Antiguas.200(1),Barbadoss.184,AnguillaCompanies
Regulationss.10(1)
6
Belizes.5(4)(a),St.Kittsss.2&5(2)(c)
7
Jamaicass.3637(butnoterighttoretainparvaluenolongerapplies),Montserrat,Nevis,Antigua,Barbados
s.26(2)&(3),Anguillas.28(2)