This is the second part of a series of FAQs relating to the memorandum and articles of association of a company incorporated under the Companies Act (Cap 386 of the Laws of Malta).
This second part will deepen the considerations on the share capital within the framework of the deed of incorporation and under Maltese law.
1. What is meant by the term “social capital”?
Share capital refers to the amount of funds invested/contributed into a business by the owners of the business, inasmuch as shareholders, who is effectively represented by the issue of shares of the company in favor of the shareholders.
2. What information should be included in the memorandum of association regarding the share capital clause?
Under the terms of the law, the memorandum of association must contain in particular:
- authorized share capital;
- the division of the share capital into shares of a fixed amount;
- the issued share capital;
- the amount paid up for each share; and
- when the share capital is divided into different categories of shares, the rights attached to the shares of each category.
3. What is the difference between the authorized share capital and the issued share capital of a company?
Authorized share capital refers to the maximum par value of shares that a company is authorized to issue under its memorandum, while issued share capital is that part of the authorized share capital that has actually been issued and subscribed by the shareholder/ s. Therefore, the amount of issued share capital in a company can never exceed the amount of its authorized share capital.
4. What is the minimum amount of authorized share capital that a company can have when it is created?
The law, here, distinguishes between public and private companies, so the authorized share capital of a company must be:
- not less than €1,164.69, subscribed by at least 2 people if it is a private company; and
- not less than €46,587.47, subscribed by at least 2 people if it is a public limited company.
When the authorized share capital is equal to the aforementioned minimum, it must be fully subscribed in the memorandum, and if it exceeds this minimum, at least this minimum must be subscribed in the memorandum.
5. Is it necessary that all shares of a company be fully paid upon signing the memorandum?
No. The law provides for a minimum percentage threshold that must be released upon signing the MoU and again distinguishes between public and private companies in this regard.
In the case of a public company, not less than 25%, and in the case of a private company not less than 20%, of the nominal value of each subscribed share must be paid upon signing the memorandum, and these the same minimum release requirements also apply to any new issue of shares of the relevant company.
Any part of the issued capital which has not been paid up by the shareholders at the time of the signing of the Memorandum (also called “uncalled” capital) may then be called by the company (i.e. the shareholders will be obliged to pay) at any time, in accordance with the provisions of the Companies Act and the Articles of Association.
6. What is the most common type of stock a corporation can issue?
The law stipulates that every company must hold ordinary shares at all times. In addition, unless otherwise stated, a share is considered ordinary. Therefore, the most common type of stock issued by a corporation is ordinary actions.
Ordinary shares are shares which generally enjoy the same minimum standard rights to dividends, the right to vote at general meetings and the right to return of capital in the event of liquidation of the company.
7. What is the difference between preferred stock and deferred stock?
Preference shares are shares which carry a preferential right of payment over other types of shares (such as common shares), generally with respect to the payment of annual dividends available for distribution and/or the reimbursement of capital in the event of liquidation.
Deferred shares are shares that give the right to a dividend when a certain minimum rate of dividend has been paid to ordinary shareholders.
8. Can different types of shares be divided into different classes of shares?
Yes. Where the intention is to attach special rights to a specific type of shares, these may be divided into different classes of shares – which classes of shares would naturally have different underlying rights (and restrictions) each other.
Different classes of shares are generally referred to by different names, for example (i) common A shares and common B shares, or (ii) participating preferred shares and redeemable preferred shares. What is important is that the specific rights (and restrictions) applicable to each class of shares are clearly defined in the share capital clause of the memorandum of association (as well as in the articles of association, to the extent necessary).
9. What is the procedure for changing or modifying class rights?
Any modification of the rights attached to the different classes of shares will necessarily imply a modification of the memorandum and articles of association, and it is therefore an extraordinary resolution of the company which must be adopted in order to modify or modify the rights of the classes.
10. Does the share capital of a company remain the same and/or fixed throughout its life?
Not necessarily. A company may choose to increase or decrease its authorized and/or issued share capital at any time during its life.
Look for the next series of FAQs which will focus on the objects and powers of a company as regulated by the Memorandum and Articles of Association.