Question

Having considered the various options for funding the organic farm, the board of OzFarm Pty. Ltd. has decided on a mix of debt and equity. In order to raise additional cash for its equity investment in the new project, OzFarm decides to issue additional ordinary shares and a new class of preference shares. OzFarm would like your advice on the legal rules that govern the proposed offer and issue of new shares.

Answer 1

Answer:-

When a company is formed, the person or people registering the company will decide on thenumber and classes of shares to be issued. Under s117(2k) the application for registration of acompany limited by shares must specify among other things:

•The number and class of shares each member agrees in writing to take up

•The amount each member agrees in writing to pay for each share

•If that amount is not to be paid in full on registration – the amount each member agrees inwriting to be unpaid on each share.

Theshares to be taken up by the members as set out in the application are taken to be issued to themembers on registration of the company: s120(2) Many large share issues made by public companiesare underwritten. In an underwriting agreement, the underwriter agrees to subscribe for any sharesoffered by the company that are not subscribed for by other people during the offering. Usually, theunderwriter will be a stockbroking firm or financial intermediary. In return for this promise theunderwriter will be paid a fee by the company. The amount of the fee will depend on the assessmentby the parties of the risk that the offer will be under-subscribed. In exercising their share issuepower, directors must act in good faith of the company and for proper purpose, with reasonable careand without conflict. Having properly decided to make a share issue, the BOD of the company mustestablish whether:

•Member approval of the proposed issue is required

•There are any restrictions on the people to whom the shares can be offered

•The disclosure requirement in CHPT 6D of the CA applySee HRS [¶18-320] and [¶19-320] – [¶19-420] and Figure 19.6