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TOPIC 1

SHARE CAPITAL
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MAINTENANCE
OF SHARE
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CAPITAL
 Rights issue & bonus issue
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INTRODUCTION

Definition:
new shares offered by company to
existing shareholders on
pro-rata basis within a fixed time
period.
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Basically in explaining the definition of

right issue, must look at two terms:
allotment and pre-emption rights
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This is because as been known that section

85(1) of CA 2016, provides that where a
company issues new shares which rank
equally to existing shares as to the voting or
distribution rights, the company must first
offer the new shares to the members of
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existing shares on a prorated basis.

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Besides that section 85(2) stated the offer to

the member must be given a time frame for
acceptance.

And section 85(3) said that directors may

dispose of the new shares in a way they
think most beneficial to the company only if
the offer not accepted by existing member.
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Rights issues are usually offered at a lower

price than the current market price of the
shares
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BONUS ISSUE OF SHARES/BONUS
z SHARES

Definition:
This is an allotment of shares to existing
shareholders in the proportion of their
present holdings.
‘A bonus issue of one new share for every
existing share held by the shareholders’
means the company is allotting fully paid-up
shares to shareholders on the basis of one
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new share for every one share currently

held.
This type of share do not involve any cash
outlay on the part of the shareholders.
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Distinguish between right issue and
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bonus issue
BASIS FOR
COMPARISON
1) DEFINITION Right shares are the one
available to the existing
shareholders equivalent to
their holdings, that can be
bought at a fixed price, for a
definite period of time.
2) PRICE Issued at discounted prices
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3) OBJECTIVE To raise fresh capital for the
firm.
BONUS ISSUE
Bonus shares refers to the
shares issued by the
company free of cost to the
existing shareholders in the
proportion of their holdings,
out of accumulated profits
and reserves.
Issued free of cost
To bring the market price per
share, within a more popular
range.
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BASIS FOR BONUS ISSUE

COMPARISON
3) Shareholders may fully or No such renunciation
RENUNCIATION partly renounce their rights.

4) PAID UP Either fully or partly paid up. Always fully paid up.
VALUE
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5) MINIMUM Mandatory Not required

SUBSCRIPTION
 MAINTENANCE OF SHARE CAPITAL
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INTRODUCTION

Companies Act 2016 has reformed the

provision of share capital and likewise the
provision on maintenance of capital.

Under the Companies Act 2016, it has

prescribed solvency test which must be
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satisfied before a company can perform any

of the reduction of capital, share buyback,
financing purchase of own shares.
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FINANCIAL ASSISTANCE TO PURCHASE
SHARES
The main rule section 123 CA 2016:
Company is restricted ** from providing financial
assistance whether directly or indirectly and whether by
means of a loan, guarantee or provision of security or
otherwise, for the purpose of or in connection with a
purchase ……
(a)Any shares in the company
(b)in the case of subsidiary, any shares in its holding
company or in any way purchase, deal in or lend money
own its own shares
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(c)For purpose of reducing or discharging the liability :

if the person has acquired shares in the
company or its holding company and
the liability has been incurred by any person
for the purpose of the acquisition of the shares
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Section 123(1) list some forms of financial

assistance that is loan, guarantee or
provision of security but they are not
conclusive.

a
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