CAPITAL AND SHARES

39
Under the Act of 1929 (see s. 46) a company may, if so
authorised by its articles, issue preference shares which are,
or at the option of the company are, liable to be redeemed.
This power is, however, subject to the following limitations:
(1) only fully paid shares may be redeemed, (2) redemption
may only be effected out of profits which would otherwise
be available for dividend or out of the proceeds of a fresh
issue of shares made for the purposes of the redemption,
(3) if the redemption is effected out of profits, there shall be
transferred out of profits which would otherwise have been
available for dividend to a special ‘Capital Redemption
Reserve Fund’ a sum equal to the amount applied in redeeming
the shares and (4) if the shares are redeemed at a premium,
the premium must in any event be provided for out of the
profits of the company before the shares are redeemed.
Having regard to ss. (3) it would appear to be essential that
the actual terms of redemption must be specified in the articles
and that an article giving the directors power to fix the
terms would be invalid.

Where under this section a company has redeemed or is
about to redeem any preference shares, it may issue shares
up to the nominal amount of the shares redeemed or to be
redeemed as if such latter shares had never been issued
and no capital duty will be payable under the Stamp Act
upon such new issue provided that where the new issue is
made before the redemption of the old shares, the old shares
are redeemed within one month after the issue of the new
shares [S. 46 (4).]

The provisions of the Act as to reduction of capital apply
to the Capital Redemption Reserve Fund save that after new
shares have been issued in place of redeemed shares under
the above mentioned provision enabling such issue, the
Capital Redemption Reserve Fund may then be applied up
to an amount equal to the nominal amount of the new shares
so issued, in paying up unissued shares of the company to be
issued to the members of the company as fully paid bonus
shares.

Shares can only be issued at a discount under the provisions Restrictions
of s. 47, but whether shares are, or are not, offered for public as to Issue.
subscription, a commission may be paid subject to the con-
ditions mentioned in s. 43 of the Act (see Chapter IX, p. 95).

If shares are illegally issued at a discount, the allottee cannot
get rescission when once his name has been registered if he
knew that the shares were being issued at a discount and
assented to his name being placed on the register for such