Mount Kenya University Parklands Campus: Unit Course Company Law 2 (BLW 3209)

MOUNT KENYA UNIVERSITY
PARKLANDS CAMPUS
UNIT COURSE; COMPANY LAW 2(BLW 3209)
COURSE FACILITATOR; JUSPER LUBETO
8TH FEB 2019

INTRODUCTION
This question seeks to discuss the nature, scope and applicability of share allotments and
pre-emptive rights in company law.
A share is a unit of a given amount defining a shareholder’s proportionate interest in the

company. In the case of BORLADS TRUSTEE V STEEL BROS AND COMPANY LTD1.
The share is the interest of a shareholder in the company measured by a sum of money for the
purpose of liability and accountability in what assets or interests the company owns.
NATURE OF A SHARE
Section 323 of the Company’s Act, provides that the shares or other interests of a member in a
company are personal property and are not in the nature of real estate. A share guarantees a
member the right to the following: -
(a) A right to dividends declared on the shares.

(b) Right to vote in a general meeting unless it is a nonvoting share.
(c) On liquidation of a company or on reduction of capital to receive assets distributed to
shareholders of a particular class.
(d) Right of membership as defined in the company’s memorandum and articles.
When shares are issued the directors must take care to ensure that the statutory provisions
are met. When shares are issue, directors must also take care that the company receives
full payment for the shares and shares must not be issued at a discount i.e. less than par
value. Once share have been issued, a return of allotment has to be made to the registrar
of companies setting out the shares that have been issued and the consideration that has
been received. It is covered under section 322 to 3532. Section 324, provides that shares
in a company with a share capital are required to have nominal value and the value of
each share is denominated in form of shillings.
1
1901
2
Companies Act 2015.
It also prohibits allotment of shares that fails to take the above requirements; declaring it
void. Having a value (nominal) of share and in a Kenyan currency is intended to build on
the company’s capital base and structure with easy book keeping, uniformity and easy
valuation. Failure to adhere to this will results to a fine not exceeding five hundred
thousand. Section 325 provides that each share shall be numbered and given a
distinguishing appropriate number. However, fully paid up shares, share ranked equally
for all purposes and shares a particular class of shares that are fully paid up and equally
ranked shared may not be numbered.
Section 328 provides that if a company is a private and has one class of shares, the
directors may exercise the power of the company to: -
(a) to allot shares of that class
(b) to grant rights to subscribe for or to convert any security into such shares, except to
the extent that are prohibited from doing so by the company’s articles.
Section 329, provides that on authorization of directors to allot share or rights may be given for a
particular exercise of power or for its exercise generally. Such authorization is not effective
unless it states the maximum number of shares allotted under it, specifies the date on which it
will expire, which may not be more than five years from the date of incorporation if it was
granted under the articles and or on which the resolution was passed. Such authorization may be
renewed by a resolution not exceeding five years and can be revoked or varied at any time by a
resolution of the company. It also has to state the number of shares that may be allotted under it
and the remainder to be allotted otherwise.
Allotment can still be done after authorization has expired if the shares are allotted and rights
granted in accordance with an offer or agreement made by the company before the authorization
expired and or the authorization allowed the company to do so after authorization expired.
A resolution of a company to vary, revoke or renew the authorization may be by an ordinary

resolution and if it purports to amend the articles of the company, the resolution is effective only
if it is a special resolution.
Section 332, a company shall register an allotment of shares as soon as practicable and in any
event within two months after the date of allotment. Failure to comply would amount on
conviction of an amount not exceeding five hundred thousand. Under section 333, within one
month after making an allotment of shares a limited company shall lodge with the registrar for
registration of a return of allotment which contains the information prescribed by regulations and
its accompanied by the statement of capital.
PRE-EMPTIVE RIGHT.
Pre-emptive right is a right given to the company’s existing shareholder to acquire any new
shares via allotment of shares or transfer prior to any outsider.it helps in the protection of
minority shareholders.
It is a shareholder’s privilege to purchase newly issued stock before the shares are shared to the
public. The right is enjoyed in a proportionate to the shareholders current holdings in order to
prevent dilution of the shareholder’s ownership interest. Section 337 on allotment of equity
securities includes grant of a right to subscribe for or to convert any securities into ordinary
shares in the company and the sale of ordinary shares into the company that immediately before
the sell are held by the company as treasury shares.
Section 338, a company shall not allot equity securities to a person on any terms unless the
company has made an offer to each person who holds ordinary shares in the company on the
same or more favorable terms. However, shares held by the company as treasury shares are to be
disregarded as not forming part of ordinary share capital. Under Section 53 3, the pre-emption
offer made under section338 of the act is effective if accepted within a period of twenty eight
days after the date on which the offer is made.
3
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MOUNT KENYA UNIVERSITY

UNIT COURSE; COMPANY LAW 2(BLW 3209)

COURSE FACILITATOR; JUSPER LUBETO

8TH FEB 2019

A share is a unit of a given amount defining a shareholder’s proportionate interest in the

(a) A right to dividends declared on the shares.

A resolution of a company to vary, revoke or renew the authorization may be by an ordinary

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