ACCA F4 - Corp and Business Law (ENG)

Part E Capital and the financing of companies  15: Share capital 233

3.4 Redeemable shares

Redeemable shares, which are shares issued on terms that they may be bought back by a company

either at a future specific date or at the shareholder's or company's option.

3.5 Treasury shares

Treasury shares are created when a limited company legitimately purchases its own shares out of cash

or distributable profit. The purchased shares are then held by the company ‘in treasury’ which means the

company can re-issue them without the usual formalities. They can only be sold for cash and the company

cannot exercise the voting rights which attach to them.

3.5.1 Variation of class rights

The holders of issued shares have vested rights which can only be varied by using a strict procedure. The

standard procedure is by special resolution passed by at least three quarters of the votes cast at a

separate class meeting or by written consent.

A variation of class rights is an alteration in the position of shareholders with regard to those rights or

duties which they have by virtue of their shares.

Examples of rights that attach to shares (class rights) include voting rights, a right to dividends and a

right to a return of capital when a company is wound-up. Rights attach to a particular class of shares if

the holders of shares in that class enjoy rights that are not enjoyed by the holders of shares in another

class

These class rights can only be varied by the company with the consent of all the shareholders in the class,

or with such consent of a majority as is specified (usually) in the articles. The standard procedure for

variation of class rights requires that a special resolution shall be passed by a three quarters majority

cast either at a separate meeting of the class, or by written consent. If any other requirements are

imposed by the company's articles then these must also be followed.

3.5.2 When variation rules apply

It is not a variation of class rights to issue shares to new members, to subdivide shares of another class,

to return capital to preference shareholders, or to create a new class of preference shareholders.

It is only necessary to follow the variation of class rights procedure if what is proposed amounts to a

variation of class rights. The following examples do not constitute a variation of class rights.

3.5.3 Examples: Not a variation of class rights

(a) To issue shares of the same class to allottees who are not already members of the class (unless

the defined class rights prohibit this).

White v Bristol Aeroplane Co Ltd 1953

The facts: The company made a bonus issue of new ordinary and preference shares to the existing

ordinary shareholders who alone were entitled under the articles to participate in bonus issues. The

existing preference shareholders objected. They stated that reducing their proportion of the class of

preference shares (by issuing the bonus of preference shares) was a variation of class rights to

which they had not consented.

Decision: This was not a variation of class rights since the existing preference shareholders had the

same number of shares (and votes at a class meeting) as before.

Key term

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