Shares & Shareholders

Shares simply give the owner (shareholder) a share in the ownership of a company. As units of ownership interest in a Company, Shareholders are able to receive a distribution of the Company’s earnings in the form of Dividends.

A shareholder (or member) of a company collectively owns that company. Although they are not responsible for the management of the company, some matters are considered so fundamental that they require shareholder approval (through voting). Some such examples include:

• Mergers and acquisitions
• Selling all or most of the company’s assets
• Changing of the company’s share capital
• Changing the board of directors

As a general rule: Directors manage day-to-day business activities, whilst Shareholders collectively own the company and make key decisions.

Directors must act in the bests interests of the company (even when this may conflict with their own personal interests), whilst shareholders are free to act in their own interests.

• A proprietary company must have at least one director who usually resides in Australia. 
• A public company must have at least three directors who all usually resides in Australia. 

A director can also be a shareholder of a company, which is common in smaller companies. It is possible for a small company to only have one director who is also the sole shareholder. Note that the sole director and member of a company must keep minutes (a written record) of their resolutions concerning the management of the company. These resolutions can be made by recording and signing the decision themselves.  

They’re the same thing, shareholders are sometimes called members and vice versa. 

Members of a company have certain rights and responsibilities. A member of a company must be a person (e.g. John Citizen), a body corporate (e.g. XYZ Company Pty Ltd), or a body politic (e.g. State of Queensland). A member is an entity that can own property, sue or be sued.

The difference between Common and Preferred Shares is that Preferred shareholders have seniority (or a priority) over Common shareholders to company dividends and company proceeds upon liquidation . 

Upon liquidation the claim to company proceeds is usually ranked as follows:

1. Bond-holders
2. Other debt-holders (Accounts payable etc)
3. Preferred shareholders
4. Common shareholders

Paid:  Intuitively, this means the amount that the shareholder has paid for acquiring the share.

Unpaid: Unpaid amount per share indicates that the share was only partially purchased and therefore the shareholder can be requested by the company to pay the outstanding amount as an well requested. For example a share has a value of $1 but the shareholder only paid 50 cents. The unpaid amount per share is the remaining 50 cents per share.

The number of shares to issue is a very contentious issue for small to medium sized companies with less than 5 shareholders. Let’s take a look at the advantages of issuing shares at the different ends of the spectrum in the following example:

Issuing few shares 

This approach is best taken when there is little probability for the business to raise new funds, transfer or issue of new shares.

Some advantages include:

• Simpler to understand
• Easier to manage

Issuing many shares

In contrast to the initial approach, this method is best if the Company is likely to make adjustments or expand their share capital.

Some advantages include:

• Flexibility – With a larger number of shares a Company is more easily able to adjust or change ownerships as they like. Some examples include:
• Allotting new shares
• Changing specific ownership percentages
• Trading shares
• Appearance of bigger size. A Company with a larger number of shares can often appear to be more substantial on paper.

As always, this advice is general in nature and you must take into account your personal and business’ circumstances when making this decision.

Yes, you can issue new shares or make changes to the share allocation after the initial share issue. ASIC classifies these actions under “Changes to the Share Register” and you must notify ASIC accordingly. 

General guide to notifying ASIC of changes to the register (Taken from ASIC website)

All companies

Source: ASIC Website