Transcript CHAPTER 9 MEMBERSHIP At the end of this topic you should know: • how a person becomes a member; • the significance of the.

CHAPTER 9
MEMBERSHIP
At the end of this topic you should know:
• how a person becomes a member;
• the significance of the register of members;
• the requirements for disclosure of interests in shares;
• how shares are transferred; and
• how a member ceases to be a member.
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Principles
Generally, members are the shareholders of a
company.
The Corporations Act 2001 prescribes that every
company must have at least one member: s 114.
A proprietary company is allowed to have a maximum
of 50 non-employee members: s 113.
There is no maximum for a public company.
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Becoming a Member
A person (an individual or another company) can
become a member when the company is registered or,
subsequently by:
• taking up directors’ share qualification;
• an allotment;
• registration of transfer;
• transmission by will or bankruptcy;
• exercising an option over shares; and
• converting convertible notes.
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Restrictions on Who Can Become a Member,
What is the Nature of a Share?
A company’s internal rules can impose restrictions on
who is eligible for membership.
For public companies listed on the ASX, the ASX
Listing Rules prohibit any such restrictions.
A share in a company is personal property:
s 1070A(1)-(2).
A share:
• is a form of intangible property;
• represents an interest in the company; and
• is an interest of a shareholder in a company.
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Ceasing to be a Member,
Companies With a Share Capital
A person ceases to be a member of a company with
a share capital:
• by selling all their shares;
• through having all their shares bought back by the
company;
• when all their shares are cancelled;
• when all their shares are transferred involuntarily;
• if the company is deregistered- upon death or
bankruptcy; or
• following forfeiture for non-payment of calls.
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Ceasing to be a Member,
Companies Limited by Guarantee
A person ceases to be a member of a company
limited by guarantee:
• when they resign, or their membership is
terminated;
• if the company is deregistered by ASIC; or
• upon death or bankruptcy.
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Register of Members –
Maintenance and Inspection
All companies must keep a register of their members
with contains certain prescribed information:
ss 168-169.
The register must be kept at the company’s
registered office or its principal place of business.
Alternatively, the register may be kept at a place
where maintenance of registers is carried out, or
another place approved by ASIC: s 172.
The register may be kept electronically: s 1306.
Registers may be inspected by members free of
charge; others may have to pay a fee: s 173.
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Register of Members –
Maintenance and Inspection
The use of registers without company approval, to
generate mailing lists for purposes other than the
sending of information relevant to the shares, is
prohibited: s 177.
Companies have the ability to prevent people from
getting copies of the register unless they satisfy a
“proper purpose” access test: s 173(3).
The fee charged must not exceed the marginal cost
of the company of providing the copy: AXA Asia
Pacific Holdings Ltd v Direct Share Purchasing
Corporation Pty Ltd [2009].
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Correction of Registers –
Significance of the Register
Application can be made to the court to correct the
register where mistakes have occurred: s 175,
Carew-Reid v The Public Trustee (1996).
In the absence of evidence to the contrary, the
register of members is proof of the matters contained
therein: s 176.
This is important in circumstances where members
are either denying they are members (for example, to
escape being a contributory), or asserting they are
members (for example, to obtain dividends).
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Correction of Registers –
Significance of the Register
As a general rule, it appears that a person’s name
has to be on the register for that person to be
regarded as a “member” (s 231), and therefore, able
to bring an action under Pt 2F.1.
Normally, purchasers of shares are not “members”
until the transfers are registered even though they are
the beneficial owners of the shares: Niord Pty Ltd v
Adelaide Petroleum NL (1990).
However, in exceptional cases, registration as a
member may not always be conclusive for these
purposes: Re Independent Quarries Pty Ltd (1993).
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Disclosure of Interests
Members of companies may hold shares as trustees in order
to obtain tax benefits or to conceal the true identity of the
beneficial owner.
Under s 1072H, transferees of unlisted companies who are not
the beneficial owners of the shares must notify the company
that the shares are held non-beneficially.
Listed public companies, the responsible entity of a listed
managed investment scheme, and ASIC may obtain
information about the “true” ownership of shares in the
company or interests in the scheme under Pt 6C.2.
Trustees of shares also have obligations and rights relating to
the disclosure of their interests: s 1072E(1) and s 1072E(9).
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Substantial Shareholdings
A person who acquires or ceases to have a substantial
holding in: a listed company; or a listed registered
managed investment scheme; must disclose the detailed
information prescribed by the Corporations Act within a
certain period of time: see [9.120].
A person has a “substantial holding” if that person or their
associates is entitled to more than 5% of the total number
of votes attached to voting shares: s 9.
A person must also give full particulars of any change that
is greater than 1% in a substantial holding or if that person
makes a takeover bid: s 671B.
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Transfer of Shares – Unlisted Shares
Under s 1070A, shares are transferable in the manner
provided by the constitution or, if the company is a listed
company, the ASX Listing Rules or operating rules of a
prescribed CS facility.
With shares, the new member’s name must be entered on the
company’s register: s 1072F(1).
This occurs after the transfer and share certificate have been
lodged, any fees payable on registration have been paid and
the directors have been given any further information they
required to establish the right of the person to make the
transfer.
Once the transfer has been registered, the (unlisted) company
will issue a share certificate to the transferee.
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Listed Shares
If the company is listed on an Australian Stock
exchange, a simplified procedure for the transfer of
shares is available under s 1075A and Ch 8 of the
ASX Listing Rules.
In essence, the system relies on “brokers”
guaranteeing the good title of the transferor.
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ASX Trade
“ASX Trade” is an electronic screen-based training
system.
Orders are entered into the “ASX Trade” system and
transmitted to the market via the ASX’s host
computer.
Other brokers can then see via their terminals and
respond.
Orders are executed on a price and time priority
basis.
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CHESS
“CHESS” is the acronym for Clearing House
Electronic Subregister System. CHESS is an
electronic settlement and transfer system used by
brokers and other institutional investors.
This system provides electronic transfer of securities
within the time frame of T=3 (third business day after
trade date) and guarantees payment and delivery.
Instead of share certificates, shareholders in a listed
company receive a “holding statement” (similar to a
bank statement) when there is any change in their
shareholding in the company.
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Restrictions on the Transfer of Shares –
Refusal to Register
A company’s internal rules may give directors the
right to refuse to register a transfer of shares:
ss 1072F-1072G.
Any discretion to refuse registration must be
exercised in good faith for the benefit of the company,
and not for any other purpose: Re Smith & Fawcett
Ltd [1942].
Under s 1071F, anyone refused registration may
apply to the court and if the court believes the
directors have refused or failed to register “without
just cause”, the court can make an order as it sees fit:
Waters v Winmardun (1990).
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Restrictions on the Transfer of Shares –
Refusal to Register
Directors should not delay in considering whether to
refuse registration or not.
Under s 1071E, a company which refuses registration is
required to send notice of the refusal to the transferee
within two months of the date on which the transfer was
lodged.
Breach of this provision is an offence of 10 penalty units
and may, under general law, also result in the company
losing the right to deny registration: Re Swaledale
Cleaners Ltd [1968].
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Restrictions on the Transfer of Shares –
Winding Up Situations
Generally, any transfer of shares must be made
before commencement of winding up.
Where winding up is by court order, any purported
transfer after winding up commences is void:
s 468(1). Although the transfer can be validated by
the court: s 468(3).
Where the winding up is voluntary, any transfer of
shares is void unless it is made with the sanction of
the liquidator or the court: s 493A.
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