Companies Act 2016 - No Par Value Shares

No Par Value Shares

Section 74 - All shares issued before or upon the commencement of this Act shall have no par or nominal value.

Likely Effects and Implications

Under the new law, companies can issue shares at any value they choose. That also means that there is no more concept of prohibiting the issuance of shares at a discount.

The directors now have the discretion and the duty to determine the appropriate value of the shares when issued.

Transitional provisions relating to abolition of nominal value

Section 618(2) - Upon the commencement of Section 74, any amount standing to the credit of a company's share premium account and capital redemption reserve shall become part of the company's share capital.

Likely Effects and Implications

No more share premium and capital redemption reserve account, only left share capital account.

What can we do the the share premium account?

Section 618(3) - Notwithstanding subsection (2), a company may, within twenty-four (24) months upon the commencement of Section 74, use the amount standing to the credit of its share premium account to -

(a) Provide for the premium payable on redemption of debentures or redeemable preference shares issued before the commencement of Section 74;

(b) Write off - 

(i) the preliminary expenses of the company incurred before the commencement of Section 74; or

(ii) expenses incurred, or commissions or brokerages paid or discounts allowed, before or upon the commencement of Section 74, for any duty, fee or tax payable on or in connection with any issue of shares of the company;

(c) pay up, under an agreement made before the commencement of Section 74, shares which were unissued before that date and which are to be issued upon that date to members of the company as fully paid bonus shares;

(d) pay up in whole or in part the balance unpaid on shares issued before the commencement of Section 74 to members of the company;  or 

(e) pay dividends declared before the commencement of Section 74, if such dividends are satisfied by the issue of shares to members of the company.

What can we do the the capital redemption reserve account?

Section 618(4) - Notwithstanding subsection (2), a company may, within twenty-four (24) months upon the commencement of Section 74, use the amount standing to the credit of its capital redemption reserve account to pay up shares which were unissued before that date and which are to be issued to members of the company as fully paid bonus shares.

What happens to unpaid shares issued?

Section 618 (6) - Notwithstanding subsection (1), the liability of a shareholder for calls in respect of money unpaid on shares issued before the commencement of Section 74, whether on account of the par value of the shares or by way of premium, shall not be affected by the 
shares ceasing to have a par value.

Disclaimer:-

This guide includes information obtained or derived from a variety of publicly available sources. I have not sought to establish the reliability of these sources or verified such information. All such information is provided "as is" and I do not give any representation or warranty of any kind (whether expressed or implied) about the suitability, reliability, timeliness, completeness and accuracy of this publication. This publication is for general guidance only and shot not be construed as professional advice. Accordingly it is not intended to form the basis of any decision and you are advised to seek specific professional advice on any transaction or matter that may be affected by this publication before making any decision or taking an actions.