Capital

Company Capital

Private limited companies commonly have a very small issued share capital.  However, this does not necessarily bear any relationship to the value of the company.It reflects the nominal amount paid for the share on its issue, which is commonly as low as €1.00 or less.

A company’s issues share capital is the total value expressed as a currency amount of the consideration received by the company in respect of the allotment of shares of the company and the sums in its share premium account, capital conversion reserve fund and capital redemption reserve fund. Undenominated capital refers to capital in excess of the nominal value of the issued shares.

The share premium is the value received in respect of the allotment of shares in excess of the total nominal amount of the shares. It is transferred to the share premium account. It is to be credited to and forms part of the undenominated capital of the company.

A company is empowered under default provisions and/ or its articles, to issue different classes of shares. The rights attaching to the shares may be defined by the constitution or by the terms of the resolution which provide for their issue. A detailed return is required to the CRO of resolutions which define the rights attached to share capital.


Authorised Share Capital

A limited company may be formed with an authorised share capital. Alternatively, it may be provided in the company’s constitution that the shares are divided into shares of specified value, without setting out the number of shares authorised to be issued.

The Companies Act, 2014 Act provided that a limited company need no longer required have a specified authorised share capital.The did not introduce “no par value” shares, unlike the position in many US jurisdictions. Ultimately, the matter may be the subject of EU legislation.

A company may have any size of authorised share capital. It is usually set at a relatively high sum. The authorised share capital is the maximum that can be issued. It need bear no relationship to the issued share capital nor the company’s value.

Where a company with an authorised share capital needs to raise new capital in excess of its authorised share capital, it can increase its authorised share capital. It can be increased by an ordinary resolution of the shareholders. The constitution is required to be re-stated.  The increase in authorised capital must be notified to the CRO within 30 days.


Denomination and Value I

Shares must have a nominal value. The amount originally paid or payable to the company for the share must be at least this value. The nominal value of the share is generally a minimal amount, such as €1.00 or less. The nominal amount may be in a foreign currency. Different classes of share in the same company may be denominated in different currencies.

The actual sum paid to the company for the share may comprise the nominal value and a share premium. The share premium is treated as capital. The circumstances in which it may be returned to the shareholders are very limited.

The share premium account is treated like share capital. It is subject to most of the same rules applicable to other funds subscribed as capital. It is treated as capital in the accounts. It is not usually distributable to shareholders, other than in a winding up.


Denomination and Value II

There are procedures for increasing the nominal value of the share capital. The nominal share capital may be increased by an ordinary resolution of the shareholders. This is usually done by adding undenominated capital from the share premium account. Otherwise, the liability of the members, requiring their individual consent would be increased.

The change to capital is required to be notified to the Companies Registration Office within 30 days.  Failure to do so constitutes an offence and the company and officers in default may be convicted. The procedure is set out in detail in another section.The constitution must be restated to reflect the change in most cases.

When the Euro was introduced, the nominal value of shares was converted from Irish pounds to Euro. Companies could round up to a convenient capital amount under a relatively simple procedure. Court consent was not required.


Capital Rearrangement I

“Stock” is similar to shares. There are minor issues only. Stock need not be numbered and need not be divided into equal parts. A company can convert its shares into stock. It can reconvert stock into shares. The matter is of limited practical importance.

In contrast to stock, the shares or each class of shares has a uniform nominal value. It may be expressed by reference to multiples of this denomination. In other jurisdictions, non-nominal value shares exist.

A company may by ordinary resolution, convert their shares into stock and their stock into shares of any denomination. It may consolidate and subdivide its shares. The company may, for example, convert every five one euro shares into a five euro share.


Capital Rearrangement II

A company may its subdivide shares into smaller denominations.  It may consolidate or divide the share capital into larger blocks or subdivide.

Each of the above changes to capital has relatively limited practical or economic effect. The changes may be undertaken by ordinary resolution. Many other types of change require a special resolution, court approval or the use of the summary approval procedure.

The change to capital is required to be notified to the Companies Registration Office within 30 days.  Failure to do so constitutes an offence and the company and officers in default may be convicted. The constitution must be restated to reflect the change in most cases.


Nominal Amount and Premium I

Shares are allotted/ issued for a nominal amount per share. There may also be a premium on each share. In some cases, the premium may be very significant. The premium must be transferred to the share premium account.  The share premium account must be retained and may not be paid out as a dividend.

Shares in a company may have a nominal value of €1.00 but may be worth and be issued for a premium of €9,999 each. In this case, €1.00 is credited to the capital account and €9,999 is credited to the share premium account for each share.

Shares may not be issued for less than their nominal value. This can be a practical issue if the share capital has lost so much value, that the share price/ value is less than the nominal value. The consent of the courts is required for issue of shares at less than the nominal value.


Nominal Amount and Premium II

The share premium account is treated as paid-up capital. The premium cannot generally be paid out as trading profits. It can be used for certain limited purposes including redeeming other shares. It may be reduced only in limited circumstances and subject to compliance with conditions.

The share premium account may be used to pay up unissued shares as paid up bonus shares, to write off certain preliminary expenses of the company, certain expenses on issuing shares or providing for a premium on the redemption of redeemable preference shares.

Where a company is acquired in return for shares, the value of the subsidiary company, which may include distributable profits, becomes part of the share premium account and cannot be distributed. The auditors could formerly allow for its distribution. The 2014 Act allows for its distribution on conditions, subject to compliance with the summary approval procedure.


Consideration for Shares

Shares must be paid up in money or in money’s worth. This may include assets, goodwill and expertise. Unlike the case with PLCs, the whole consideration may be left outstanding, so that further calls are due after issue. Similarly, there is no statutory requirement to value the consideration received.

The directors of a private limited company must act in good faith in the interests of the company is setting the terms of the consideration for the issue of share. Although the are fewer statutory requirements that apply to PLCs, their statutory and fiduciary duties to act in good faith apply.

A share may not be issued at a discount.  This is a price which is less than the nominal share amount.  Where a share is so allotted, the allottee remains liable to pay the balance of the nominal amount to the company with interest. A subsequent holder of the share is also is liable to pay the amount. Where more than one person becomes a holder, they are jointly and severally liable.

The obligation on the successor to pay does not apply to a purchaser for value, who at the time of purchase, did not have actual notice of the contravention or to a successor who derived title from a person who became holder after the contravention and was not so liable. Where there is a contravention, the company and any officer in default, is guilty of a category 3 offence.


Calls

Shares may be issued without the sum due on them as their nominal value, or as their nominal value plus a premium, being paid in full.  In this case, the shareholder remains liable to pay the outstanding sum.  The terms of future calls may be provided for on allotment. They may be, for example, payable by fixed instalments.

The default position/ articles provide for calls on shares. The directors may make calls.  The call may not exceed one-quarter of the nominal value of the share. A month must have elapsed between calls under the standard provisions.  30 days’ notice of a call is required.

Where a call is not paid, the sum due can be recovered as a liquidated debt due to the company.  Interest may be payable on arrears of a call.  Calls are presumptively payable at the same rate by shareholders of the same class.  If the directors have a discretion regarding calls, they must exercise it in good faith. See generally, the separate section on calls and contributories.

The provisions in respect of calls on shares, forfeitures and liens are re-enacted in the 2014 Act. In accordance with the approach generally of the legislation, they are set out in the legislation itself rather than in the company constitution. They may be varied by the company constitution.


Forfeiture and Liens I

The default provisions/ articles provide for the forfeiture of shares for failure to pay calls. Forfeiture for non-payment of calls is an exception to the general prohibition on the reduction of share capital.   The directors may serve a notice on the shareholder, requiring the payment of calls and interest due within 14 days.  It must set out that the shares will be forfeited otherwise. Shares may be forfeited if the payments are not made within the relevant time.

There are additional provisions which regulate the forfeiture of shares by a public limited company.  If forfeited shares are not disposed of within three years, the company must cancel the shares and reduce the share capital.


Forfeiture and Liens II

Shares which have been forfeited may be sold by the directors as they see fit.  The directors may complete a statement, which is confirmed by the default provisions to be conclusive evidence of its contents.

A lien may be conferred over shares by the company.  The default provisions/ articles provide a first and primary lien on every share for monies payable by the shareholder to the company.  The lien is enforceable by the sale of the share.  14 days’ notice in writing must be given to the holder, demanding payment.  The directors are authorised to transfer the shares to the purchaser.

A public company may not charge or create a charge over its own shares.  The Companies Act renders void such charges.  There are a limited number of exceptions.


References and Sources

Primary References

 

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  Ch.8   Courtney

Keane on Company Law 5th Ed. (2016) Ch. 14 & 16 Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Palmer’s Company Law