Part 3 – Share Capital, Shares and Certain Other Instruments

7 Chapters – Sections 64 to 126

Part 3 Chapter Overview

Chapter 1 – Preliminary and Interpretation

Chapter 2 – Offer of Securities to the Public

Chapter 3 – Allotment of Shares

Chapter 4 – Variation in Capital

Chapter 5 – Transfer of Shares

Chapter 6 – Acquisition of Own Shares

Chapter 7 – Distributions

Part 3 Summary

Part 3 contains the law relating to company share capital. It lays down the rules governing share allotments, variation in capital, transfer of shares, acquisition of own shares and distributions etc. Many provisions in this part of the Act come directly from Table A. The general prohibition on a private company limited by shares offering shares to the public has been retained. However, in line with the EU Prospectus Directive, an offer to 149 persons or less does not constitute a public offer nor does an offer to qualified investors. The Act retains the current provisions regarding the “share premium account” and any premium received becomes part of the undenominated share capital.

What is new?

There is now an explicit prohibition on bearer shares. It is intended that this will enhance Ireland’s reputation as a country which is playing its part in the international movement against money-laundering.

The holding of shares in trust is still permissible however a company may, unless there is an explicit direction to the contrary in the constitution, request the identity of the beneficial owner of shares should the need arise.

The Act introduces some new definitions and clarifies some existing terms:

1. “Company capital”, a new term which comprises the company’s share capital, share premium, capital conversion reserve fund and capital redemption reserve fund
2. “Undenominated capital”, a new term which comprises the excess of company capital over the nominal value of issued shares.
3. 71 clarifies the definition of “Share premium” as meaning excess over nominal value. There are two new exceptions which will not be considered share premium:

• Merger relief whereby excess value received on allotment may in certain circumstances be treated as a distributable reserve.
• Where shares are allotted to holding or sister company in exchange for non-cash consideration, assets deemed to transfer at lower of book value or cost.

The Act sets out regulations relating to the following:

1. Calls on shares
2. Liens
3. Forfeiture of shares
4. Transmission of shares
5. Procedures for declarations, payments of dividends
6. Bonus issues

This should reduce the detail required to be put into the articles of association although these provisions may be varied by the constitution if so desired.

The Act takes a new approach to shareholder and creditor protection:

• 91 – Variation of Capital on Reorganisation contains a new provision whereby a company may dispose of assets, liabilities and/or undertakings in exchange for securities in the transferee company being allotted to members of the company (i.e. rather than to the transferor company).
• 95 – is a new provision bringing existing common law rule into statute. It states that where the constitution otherwise provides, if the directors do not exercise the power to decline to register a share transfer within two months, such power lapses.
• 97 – is new and deals with the transmission of shares in special circumstances (including cases of mergers). The minister may prescribe procedures whereby the registration of shares may be validly effected (a) in cases of death of a sole member of a company where that members was also the sole director, or (b) in other cases where it is difficult to effect the registration.

What is different?

Some amendments regarding allotments:

• No longer an exemption from pre-emption for shares issued other than for cash and employee share scheme shares
• Shares must be offered pre-emptively to all holders of voting shares (previously limited to holders of “relevant shares”
• The period for take up of pre-emptive rights has been shortened from 21 days to 14
• The five year cap on the authorisation period for authority to allot shares has been removed, although the requirement to specify a time limit remains and allotments should not be made outside that time period without renewing the authority

The new Summary Approval Procedure (SAP) can be used for the following transactions involving share capital:

• 82 Financial assistance for the acquisition of shares
• 84 Reduction in company capital
• 91 Variation of company capital on a reorganisation
• 118 Distribution of pre-acquisition profits (the dividend trap)
• 464 Mergers

There have been some changes regarding the acquisition by a company of own shares. The original prohibition on providing financial assistance by a company for the purchase of its own shares was set down in Section 60 of the 1963 Act. The 2014 Act sets out the power of a company to acquire its own shares as an entitlement, whereas the previous legislation sets it out as a negative with exceptions to the general prohibition. These exclusions from the prohibition in the new Act are:

• By transfer or surrender to the company otherwise than for valuable consideration
• By cancellation pursuant to a reduction of capital
• Pursuant to an order of the court
• Where those shares are redeemable shares, by redemption or purchase
• By purchase order
• Where those shares are preference shares referred to in S.108 by redemption under that section
• Pursuant to a merger or division

The Act also introduces some minor measures to facilitate acquisition:

• Removal of rule requiring 10% (in nominal value) at all times to be non-redeemable.
• Requirement that contract be made available for inspection for 21 days prior to meeting removed by the Act.
• Proceeds of issue of new shares may be used for payments incidental to the acquisition.

A simplification has been made regarding the administration of share transfers whereby the transferee is no longer required to sign the stock transfer form.  The transferor is responsible for its execution and is deemed to remain the holder of the shares until they make an application to the company to have the transferees names entered into the register of members as the holder of the relevant shares.

What are the Key Points?

• New definitions
• Regulations regarding shares previously contained in Table A now in the Act
• New approach to shareholder protection
• Removal of exemptions from pre-emption
• Summary Approval Procedure
• Changes regarding acquisition of own shares

What do accountants need to do?

Review their client list to see where there may be benefits to using the new SAP in respect of share transactions. Upgrade internal precedents and procedures in relation to share allotments and share issues.

What do companies need to do?

Review their share structure and look at planning opportunities.