4. Part 4 Share Capital

4. Part 4 Share Capital

Par Value, Share Premium, Authorized Capital…outdated concepts

Section 135 provides that shares in a company have no nominal value. This applies to companies both under the new system and the old regime.

As a result, concepts such as “par value”, “share premium” and “authorized capital”, which are applicable only in terms of the old regime of company law, are no longer used.

Under section 98(4), conditions in the memorandum of association of a company incorporated under the old regime relating to authorized capital and par value are for all purposes regarded as obsolete.

Share capital represents the total amount that the company actually receives from its shareholders as capital contribution; there is no need to maintain a separate share premium account.

Alteration of Share Capital

With the elimination of par value, a company can consolidate and subdivide shares more easily by simply reducing or increasing the number of shares without affecting its share capital.

Bonus shares may still be issued in the absence of a share premium, as shares can be issued without transferring an amount to the share capital account.

Under section 170, a company may—

1. increase its share capital by allotting and issuing new shares in accordance with Part 4;
2. increase its share capital without allotting and issuing new shares, if the funds or other assets for the increase are provided by the members of the company;
3. capitalize its profits, with or without allotting and issuing new shares;
4. allot and issue bonus shares with or without increasing its share capital;
5. convert all or any of its shares into a larger or smaller number of shares;
6. cancel shares—
   1. that, at the date the resolution for cancellation is passed, have not been taken or agreed to be taken by any person; or
   2. that have been forfeited.

Transitions and Savings

Section 149 provides that a company may apply its capital to writing off the preliminary expenses of the company, commissions paid, or any other expenses of any issue of shares.

Sections 194 to 199 modify the merger and group reconstruction relief, so the two types of relief may operate in a no-par environment.

Sections 35 to 41 of Schedule 11 contain transitional provisions relating to migration from shares having nominal value to shares having no nominal value. The contractual rights defined by reference to par or nominal value and related concepts will not be affected by the migration to no-par.