14. Members, shares and capital

Who is a member

Section 64 says the subscribers of the memorandum are deemed to have agreed to become members and are entered in the register on registration. Every other person who agrees in writing to become a member, and whose name is entered in the register of members, is a member. In a company with share capital, each member is a shareholder and must hold at least one share.

Capacity: section 65 says an individual cannot become a member if he is of unsound mind and so found by a court, is an undischarged bankrupt, or is under 18.

Votes and meetings: section 66 deals with a member's right to attend meetings and vote. In Pender v Lushington the court held that a member's right to have his vote recorded is a personal right he can enforce himself.

What a share is

A share is a member's interest in the company, measured by a sum of money. It carries rights, such as to dividends, to vote and to a share of surplus assets on winding up, and the obligation to pay for it. Section 95 makes shares transferable property, subject to the articles.

Classes of shares: a company may issue different classes, such as ordinary and preference shares, under section 98. Preference shares usually carry a fixed dividend paid before ordinary shareholders get anything.

No non-voting or weighted shares: section 96 prohibits non-voting and weighted shares.

Transfer and title: section 126 deals with the transfer of shares. A share certificate under the company's seal is prima facie evidence of title under section 123, and a company that issues an inaccurate certificate may be estopped from denying it to a person who relied on it in good faith.

Capital maintenance

Creditors of a limited company can look only to its assets. So the law protects the company's capital.

No issue at a discount: in Ooregum Gold Mining v Roper the House of Lords held that a company could not issue shares at a discount to their nominal value. Section 100 of the Act deals with issues at a discount.

No return of capital: in Trevor v Whitworth the House of Lords held that a company could not buy its own shares, because that returned capital to the members. The Act now allows a company to acquire its own shares, but only under the conditions in sections 135 to 141.

Reduction of capital: a company may reduce its share capital only by special resolution confirmed by the court, under sections 89 to 93.

Financial assistance: section 134 prohibits a company from giving financial assistance for the acquisition of its own shares, subject to the exceptions it sets out.

Dividends: dividends are paid out of profits available for the purpose, not out of capital.