Corporations Act - Australia

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liability company is issued on the following terms:

      (a) if a no liability company is wound up and a surplus remains, it must be distributed among the parties entitled to it in proportion to the number of shares held by them, irrespective of the amounts paid up on the shares; and

      (b) a member who is in arrears in payment of a call on a share, but whose share has not been forfeited, is not entitled to participate in the distribution on the basis of holding that share until the amount owing in respect of the call has been fully paid and satisfied.

      Companies incorporated as no liability companies — special terms of issue

      (3) If a company:

      (a) either:

      (i) is a no liability company; or

      (ii) was initially registered as a no liability company and has changed its status under section 162 to another type of company; and

      (b) ceases to carry on business within 12 months after its registration and is wound up;

      shares issued for cash rank (to the extent of the capital contributed by subscribing shareholders) in the winding up in priority to shares issued to vendors or promoters, or both, for consideration other than cash.

      (4) The holders of shares issued to vendors or promoters are not entitled to preference on the winding up of a company that:

      (a) is a no liability company; or

      (b) was initially registered as a no liability company and has changed its status under section 162 to another type of company.

      This is so despite anything in the company’s constitution or the terms on which the shares are on issue.

      254C No par value shares

      Shares of a company have no par value.

      Note: The Part 10.1 transitional provisions contain provisions that deal with the introduction of no par value shares. See also subsection 169(4).

      254D Pre‑emption for existing shareholders on issue of shares in proprietary company (replaceable rule — see section 135)

      (1) Before issuing shares of a particular class, the directors of a proprietary company must offer them to the existing holders of shares of that class. As far as practicable, the number of shares offered to each shareholder must be in proportion to the number of shares of that class that they already hold.

      (2) To make the offer, the directors must give the shareholders a statement setting out the terms of the offer, including:

      (a) the number of shares offered; and

      (b) the period for which it will remain open.

      (3) The directors may issue any shares not taken up under the offer under subsection (1) as they see fit.

      (4) The company may by resolution passed at a general meeting authorise the directors to make a particular issue of shares without complying with subsection (1).

      254E Court validation of issue

      (1) On application by a company, a shareholder, a creditor or any other person whose interests have been or may be affected, the Court may make an order validating, or confirming the terms of, a purported issue of shares if:

      (a) the issue is or may be invalid for any reason; or

      (b) the terms of the issue are inconsistent with or not authorised by:

      (i) this Act; or

      (ii) another law of a State or Territory; or

      (iii) the company’s constitution (if any).

      (2) On lodgment of a copy of the order with ASIC, the order has effect from the time of the purported issue.

      254F Bearer shares and stock must not be issued

      A company does not have the power to:

      (a) issue bearer shares; or

      (b) issue stock or convert shares into stock.

      Note: The Part 10.1 transitionals contain provisions for the conversion of existing stock into shares.

      254G Conversion of shares

      (1) A company may:

      (a) convert an ordinary share into a preference share; and

      (b) convert a preference share into an ordinary share.

      Note: The variation of class rights provisions (sections 246B‑246G) will apply to the conversion.

      (2) A company can convert ordinary shares into preference shares only if the holders’ rights with respect to the following matters are set out in the company’s constitution (if any) or have been otherwise approved by special resolution of the company:

      (a) repayment of capital;

      (b) participation in surplus assets and profits;

      (c) cumulative and non‑cumulative dividends;

      (d) voting;

      (e) priority of payment of capital and dividends in relation to other shares or classes of preference shares.

      (3) A share that is not a redeemable preference share when issued cannot afterwards be converted into a redeemable preference share.

      254H Resolution to convert shares into larger or smaller number

      (1) A company may convert all or any of its shares into a larger or smaller number of shares by resolution passed at a general meeting.

      Note: The variation of class rights provisions (sections 246B‑246G) may apply to the conversion.

      (2) The conversion takes effect on:

      (a) the day the resolution is passed; or

      (b) a later date specified in the resolution.

      (3) Any amount unpaid on shares being converted is to be divided equally among the replacement shares.

      (4) The company must lodge a copy of the resolution with ASIC within 1 month after it is passed.

      (5) An offence based on subsection (4) is an offence of strict liability.

      Note: For strict liability, see section 6.1 of the Criminal Code.

      Part 2H.2 — Redemption of redeemable preference shares

      254J Redemption must be in accordance with terms of issue

      (1) A company may redeem redeemable preference shares only on the terms on which they are on issue. On redemption, the shares are cancelled.

      Note: 1: For the power to issue redeemable preference shares see paragraph 254A(1)(b) and subsections 254A(2) and (3).

      Note: 2: For the criminal liability of a person dishonestly involved in a contravention of this section, see subsection 254L(3). Section 79 defines involved.

      (2) This section does not affect the terms on which redeemable preference shares may be cancelled under a reduction of capital or a share buy‑back under Part 2J.1.

      254K Other requirements about redemption

      A company may only redeem redeemable preference shares:

      (a) if the shares are fully paid‑up; and

      (b) out of profits or the proceeds of a new issue of shares made for the purpose of the redemption.

      Note: 1: For a director’s duty to prevent insolvent trading on redeeming redeemable preference shares, see section 588G.

      Note: 2: For the criminal liability of a person dishonestly involved

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