Share capital and contribution of a member

Shares in limited liability company according to companies act – basic rules

The share represents the contribution of a member into the limited liability company’s share capital which is expressed in percentage. A company member acquires a share in the company proportionately to the value of his contribution into the company’s share capital, unless otherwise provided by the memorandum of association upon company incorporation or by a unanimous resolution of the general meeting.

A company shareholder may have only one share in the company.

If a company shareholder acquires more shares, these shares are joined and comprise one share.

Legal Nature of Shares

A company’s shares are not securities.

A company’s shares may not be acquired, nor may they be disposed by forwarding a public offer in terms of the law regulating the capital market.

Shares are registered in the Register of Business Entities. This registration has a constitutive effect, which means that a person becomes a member of company only from the moment of registration in other words from the registration of such person as a member of the company who owns shares with a certain percentage.

Rights Pursuant to Shares

A company shareholder has the following rights pursuant to his share:

  • Voting right in the general meeting
  • Right to a share in the company profit
  • Right to a share in the liquidation surplus
  • Other rights provided by Companies Act.

The rights of a company member pursuant to his share are proportionate to this shareholder’s share in the company’s share capital unless otherwise provided in the memorandum of association.

Co – Ownership of Share

A share may belong to multiple numbers of persons (share co-owners). Share co-owners regulate their mutual relations in relation to co-ownership shares by a separate contract.

Share co-owners exercise their voting rights pursuant to share through one joint attorney-in-fact, of whose identity they shall notify the company.

Legal actions and notices undertaken by the company, or referred to by the company to the joint attorney-in-fact have effect on all share co-owners. Until the day of serving the company with notice on appointing a joint attorney-in- fact:

  • Co-owners’ share shall not be counted for the purposes of voting and establishing a quorum in the company’s general meeting; and
  • Legal actions undertaken by the company towards one co-owner have effect on all co-owners.

Share co-owners are considered to be one member with regard to the company and have unlimited joint and several liabilities with regard to all liabilities related to that share.

Financial Support of the Company for Acquisition of a Share in the Company

A company may not, directly or indirectly, provide financial support of any kind to its members, employees or third parties for the purchase of a share in the company, in particular to grant loans, guarantees, sureties and the like. A legal transaction that is contrary to the stated condition is null and void.

Withdrawal and Cancellation of Share

A company may withdraw and cancel a share of the company member only in cases and in the way expressly provided in the memorandum of association, which was effective on the day when the company member whose share is withdrawn and cancelled had acquired the share.

A company may also withdraw and cancel a member’s share when the stated condition has not been met provided that the amendment to the memorandum of association for which this shareholder voted provides so.

Decision to withdraw and cancel the share of the company member is adopted by the general meeting.

Decision to withdraw and cancel a company member’s share contains the following:

  • Grounds for withdrawal and cancellation
  • Facts from which it follows that conditions for adopting the decision on withdrawing and cancelling a share have been met
  • Amount and term for payment of the compensation for share to the company member whose share is being withdrawn and cancelled, which may not exceed two years
  • Effect of cancellation of share on the company’s share capital.

On the occasion of withdrawing and cancelling a share, a procedure of company share capital reduction is undertaken, in which it is not necessary to pass a separate resolution on capital reduction.

Ban on Pledging the Share in Favor of the Company

A company may not accept as pledge the share of a company member in that company.

Read more:
Contributions of the company »
Additional payments of the company member »
Financing of the company by the founders through loan »

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