Tuesday, August 25, 2020

Forms and classes of shares

 Forms and classes of shares

                Forms of shares

Art. 325- Forms of shares

(1). Shares are either registered in the name of the shareholder or to bearer, as required by the shareholder.

Therefore, there are two forms of shares in Ethiopia: registered and bearer. The distinction between the two lies in the rights that may be enjoyed and obligations that may be discharged by holder of the share. In the case of registered shares, the name of the person is required to appear in the company’s register while the owner of a bearer shares, for most purposes, is the possessor.

It must be noted that all shares shall be registered in the name of the shareholder where bearer shares are prohibited by law, the memorandum or articles of association (Art.325(2)). Moreover, it has been provided under. Art. 325(3) of the Comm. Code that where bearer shares are not prohibited, any shareholder may notwithstanding any provision to the contrary convert his bearer shares into registered shares and vice versa.

ii) Classes of shares

In principle, the law under Art.335(1) of the Comm. Code provides that the memorandum of association or an amendment thereto by a general meeting may provide for the setting up of several classes of shares with different rights. Thus, a share company is free to design various classes of shares with different rights depending on its financial necessity.

In general, the company’s share may be divided into ordinary, preference and dividend shares. If the memorandum or articles of association is silent as to classes of shares, the company can issue only ordinary shares. Ordinary shares are shares which entitle their holder to exercise identical rights, or shares carrying identical obligations.

The other class of shares is preference shares. According to Art. 336(1) of Comm. Code, a share company may create preference shares either in the memorandum of association or by resolution of an extraordinary general meeting.

 Such shares enjoy a preference over other shares, such as a preferred right of subscription in the event of future issues or rights of priority over profits or assets or both (Art.336(1)). However, the shareholders with preference shares may be deprived of voting rights. But as pet Art 336(3) of the Comm.Code, the memorandum of association may provide that shareholders who have been given rights of priority over profits and distribution of capital up on dissolution of the company may vote only on matters which concern extraordinary meetings.

 Dividend shares, being one class of shares, may be issued to shareholders up on redemption of the ordinary shares. Art. 337(2) provides that shareholders whose shares are thus redeemed shall receive dividend shares. These shares do not confer any right to the part of the dividend representing the statutory interest, nor to repayment of contributions up on the dissolution of company.

It has been stated under Art. 337(2) of the comm.code that the shareholders however retain a right of vote, unless otherwise provided in the memorandum of association. They also retain a right to that part of the dividend exceeding the statutory interest and a right to distribution of a share of the surplus in the winding-up.

Moreover, it is worth nothing that all share of the same class shall have the same par value and the same rights (Art.335(2)). Every share shall confer a right to participation in the annual net profits and to a share in the net proceeds on a winding-up.

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