A company may issue equity shares with differential rights subject to compliance with the laid down conditions of the Securities and Exchange Commission of Pakistan (SECP). In this connection, the Securities and Exchange Commission of Pakistan (SECP) has issued draft regulations here on Wednesday.
According to the SECP's regulations, a company may have more than one kind of share capital and may have different classes of shares under each kind having different rights and privileges "collectively referred in these regulations as shares with differential rights."
As per draft Companies (further issue of shares) Regulations, 2018, the offer of further share capital with differential rights shall be made to each existing shareholder proportionately without any discrimination. Where any of the existing shareholders declines to accept the offer, the shares so declined shall be disposed of by the directors in such manner as may be provided in the articles or in accordance with the special resolution passed by shareholders.
Under the conditions for issuance of shares with differential rights, the SECP has said that a company may issue equity shares with differential rights subject to compliance with the following conditions:
The memorandum and articles of association of the company expressly provides and authorises the issue of different kinds and classes of share capital having differential rights and privileges.
The preference shares shall not be issued at price below par value i.e. at a discount and board shall consider and resolve the issue of differential rights.
The entitled rights of holders of preference shares regarding dividend and voting before and after conversion of preference shares into ordinary shares; (h) if the preference shares are partially or wholly redeemable, mode and manner of redemption, the SECP maintained.
The SECP said that the issue of shares is authorized by a special resolution passed at a general meeting of the shareholders. The shares with differential rights shall not exceed twenty-five per cent of the total post-issue paid up share capital including shares with differential kinds/rights issued at any point of time and the company having consistent track record of distributable profits for the last three years.
The company has not defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares and the company has not defaulted in the payment of a declared dividend to its members or redemption of its preference shares or debentures that have become due for redemption or payment of interest on such debentures and the company has not defaulted in payment of the dividend on previously issued preference shares.
The company shall seek approval of the Commission for issuance of such shares and a company intending to list its preference shares on a securities exchange shall issue such shares in accordance with the listing regulations and ancillary requirements of securities exchange. Where a company issues preference shares or ordinary shares with differential rights, the company shall not subsequently vary the rights, privileges or class of such share capital unless approval of Commission is obtained and the company shall comply with the relevant requirements under these regulations, the SECP added.
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