Law of Business Organisation: Shareholders' Rights and Dividends

Running head: LAW OF BUSINESS ORGANISATION
LAW OF BUSINESS ORGANISATION
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LAW OF BUSINESS ORGANISATION1
Introduction
The judges in the case Bank of NSW v Commonwealth defined the term share of a
company as a property of the shareholders in the company which consists of rights that the
shareholders are entitled to, by way of the provisions mentioned in the company’s articles of
association and the memorandum of association. These shares are issued by the company
because of various reasons, including confining corporate control, raising capital and
minimising tax (Austin and Ramsay 2015).
Preference shares are the shares by which the shareholders are entitled to fixed
dividends that are required to be prioritized over the dividends payable over the dividends of
ordinary shares (Hannigan, 2018). However, these shares are only issued by a company if a
few matters have been set out either by way of the constitution of the company or has been
approved by way of the company’s special resolution (Section 254A).
In the case it can be observed that the capital of the XYZ Ltd includes 5,000 ordinary
shares of the value $2 per share and 5,000 5%cumulative preference shares of the value of $5
each. Both shares were seen as fully paid. No declaration for dividends have ever been made
by the company.
Relevant Law
Under section 246B (2) of the Corporations Act 2001it has been stated that in the
variation or cancellation of the class rights of the shareholders of a corporation would be
done by way of a special resolution if there is no procedure set out by the constitution of the
corporation.
Section 246C (2) states that if only in some of the shares the class rights of the
shareholders are seen as varied then all other existing shares of that class of the corporation
would be varied and the holders of those shares would be forming a separate class.
Section 1.5.9 of part 1.5 of the Act provides that the dividends are payments which
are paid by the company to the shareholders. These dividends can only be paid if the assets
are exceeding the liabilities and the payment of such dividend is fair to the shareholders as a
whole (section 254T).