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CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

A share in a company is a form of company security1. A holder of a share in a company is called a shareholder. A share entitles the holder to become a member of a company. In fact, shares are potent evidence of membership of a company. A share is the interest of a shareholder in a company measured by a sum of money, namely, the nominal amount of the share, and also by the rights and obligations belonging to it as defined by the applicable law3 and by the Memorandum and Articles of Association of the Company. Shares are always used to raise money to finance a company. Shares are also used for the purposes of calculating liability and interest to which shareholders are entitled. Shares, as a unit of holding represent the involvement and commitment of the shareholders towards the company. Shares are properties which could be transferable depending on the provisions of the company’s Articles of Association.4 A shareholder may borrow money on the security of his shares. In other words, a shareholder may give a lender a mortgage over his shares in order to secure the payment of interest and repayment of the principal sum. A share is an investment that can attract profit or dividend5 . A company may where so authorized by its articles, issue classes of shares.

Classes of shares are created where all or some of the general rights of shareholders within a company are varied in relation to some part of the total share capital.7 When this is done, then shares in the different classes have different rights as to dividends and different nominal values. Also, the extent of a member’s undertaking to contribute capital, and the extent of his entitlement to share in distributions and vote at meetings, are all related to the number and class of shares of the company that the member holds. However, shares of the same class rank equally in all respects. Again, where the Articles of Association of a company makes provisions for the issuance of different classes of shares, then it will normally set out the rights attached to each class. These rights are referred to as class rights. Class rights may be defined as the rights which attach to a particular class of shares but not to another class or to shareholders generally.9 Class rights could either be rights specifically conferred on a class or a fundamental right enjoyed by a class even if they are also enjoyed by another class. Class rights are usually established by the terms of the company’s Memorandum or Articles of Association, or from resolutions passed under the Articles of Association, or by the terms of issue and may relate to such matters as the right to a dividend, the right to share in surplus assets if the company is wound up, and the right to attend and vote at company meetings.  However, money placed on deposit for purchase of shares is not yet an investment.

Floating of shares is one of the permanent source of finance available to the public companies. A public company that desires to have its securities quoted in

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