Shareholders are investors in the company. They usually pay money into the company in return for shares. The number of shares they hold determines the level of control they have, at shareholder level, within the company.
For example, if a shareholder holds 750 shares out of a total of 1,000 shares, that shareholder controls 75% of the votes at a general meeting of the company.
Shareholders do not make decisions on running a company, unless they are also directors. In small companies, often a shareholder is also a director. The directors manage the business and affairs (filing etc) of the company. More information on directors is here.
Every company must have at least one shareholder and at least one share.
1. Before a board (the directors or a sole director) makes any change to a company’s details on the VFSC register, it is essential that this has been authorised by proper internal documentation entered in the company’s own records. This is the responsibility of the directors.
This applies particularly to shareholder and director information, but also to registered addresses and information that has to be stated in annual returns. A change on the public register is of no value unless this is attended to first. The true source of information regarding a company is its own records.
The VFSC register is simply a public record of a company’s own records.
2. Shareholding is formally notified to the Registrar of Companies on incorporation and in annual returns. An annual return has to reflect the company’s share register at the date the return is prepared in the month allocated to the company.
As a convenience to those companies that wish to do so, the Registrar allows a board to give informal notice of shareholding changes between incorporation and the first annual return or between annual returns.
The holders of newly issued shares or transferees of existing shares can be recorded in this way but only after the board has entered their names on the company’s share register.
Shareholding details shown on the public register might have been entered from an annual return filed some months previously, so for up-to-the-moment information on who are the shareholders in a particular company, an inspection of its share register – usually kept at the registered office of the company – would have to be arranged.
How many shares should a company have?
The smallest possible number of shares in a company is one. Any number of shares, however, can be issued for any price. There is no longer authorised capital, par values or partly paid shares.
For example, intending shareholders might decide that the company will need $10,000 to buy a machine. They could arrange for the company to issue them each with 5,000 shares for which they would pay $5,000 or one share for which they would pay the same $5,000. The company would then have the necessary $10,000 to buy its machine.
How are shares valued?
When a company is to be formed, the intending shareholders decide how many shares should be issued and for what price. Each share could then be said to be worth the money paid for shares overall, divided by the money paid for them. For example, if a company has a total of 100 shares, and $100 was paid for them, then each share has an initial value of $1. As the company grows, the value of the company grows, and so does the value of each share.
If the shareholders wish to sell their shares, they will negotiate a price based on the worth of the shares at that future time. Calling in an outside expert opinion can help determine the shares’ current value. A share for which a shareholder paid $1 on incorporation could later be worth much more.
After incorporation, a company must issue to any person named in the application as a shareholder, the number of shares that the application says the shareholders will receive.
After that initial issue, the company may issue shares to any person and in any number it sees fit. Any issue of shares, including the first issue, must be notified to the registrar within 10 working days of the issue.
This power is subject to the provisions of the Companies Act and any provisions in the company rules that modify the right to issue shares.
An issue is complete when the name of the holder is entered on the company’s own share register.
In certain circumstances, provided that the company is solvent, a company may purchase its own shares or may redeem shares. A company is solvent when it is able to pay its debts as and when they fall due, and where the value of the company’s assets is not less than its liabilities.
Shareholders have one vote for each share they hold on a poll at a general meeting. They have the right to an equal share in any dividend.
They have the right to an equal share in any surplus assets – that is, assets that remain when a company has paid its creditors before it is removed from the register. These rights can all be varied in the company’s rules.
Shareholders have no right to participate in the management of a company’s business or in its affairs (filing notice or documents with the Registrar, for example), unless the Act or the company rules allow this. Directors are appointed to manage the company’s business and affairs.
How much do shareholders pay for their shares?
The price payable for the shares is generally dependent on the money the company will need to establish its business (for example, to buy a machine).
After incorporation, the same is true. The company will need money to expand its business and the board will have to decide if the company should borrow this or ask the shareholders to fund this by paying for new shares for a sum to be agreed.
When is payment required for shares?
In most cases, shareholders pay for their shares in full on incorporation of the company – by cash or cheque or sometimes by delivery of an item of recognised equivalent value such as a motor vehicle.