- 10 Marks
Question
A group of young members of Nob Company Limited petitioned the Board of Directors of the Company over dividend payments at the close of the company’s annual general meeting. They claimed that they were preferential shareholders and that after dividends were declared for them, they had the privilege for fair participation in the distribution of the remaining shares.
Required:
i) From the above scenario, are the preferential shareholders entitled to any further dividend?
(6 marks)
ii) State TWO (2) principles relating to minimum capital for a company limited by shares pursuant to provisions of the law.
(4 marks)
Answer
i) Entitlement of Preferential Shareholders:
- According to Section 48 of the Companies Act, 1963 (Act 179), a preference share is defined as a share that does not entitle the holder to a right to participate beyond a specified amount in a distribution, whether by way of dividend, redemption, or winding up.
- Preferential shareholders are entitled to dividends as specified but do not have the right to further participation in the distribution of equity shares or ordinary shares.
- Therefore, the young preferential shareholders are not entitled to any further dividend beyond what was declared as specified in their rights.
(6 marks)
ii) Principles Relating to Minimum Capital:
- Principle 1: Before a company limited by shares can transact business, exercise borrowing power, or incur indebtedness, there must have been a payment made to the company for the issue of its shares, with consideration to the value of at least a prescribed amount.
- Principle 2: Of the consideration paid, at least a prescribed lesser amount must have been paid in cash. The company must also have delivered to the Registrar of Companies a declaration in the prescribed form, signed by all the directors and secretary of the company, verifying that these payments have been received.
(4 marks)
- Topic: Contract Law
- Series: MAY 2020
- Uploader: Dotse