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Abolition Of Concept Of "Par Value"
March 2006 | Corporate | Business Bulletin

This article highlights consequential changes following the abolition of the concept of "par value" under the Companies Act (Chapter 50) ("Act") as of 30 January 2006 ("Effective Date").

Terminology
The Act has addressed and provides clarification for the interpretation of the terms "par value", "share premium", "right to return of capital on a share" and "aggregate par or nominal value of a company's issued share capital" in the context of a contract (including the memorandum and articles of a company) or other document executed before the Effective Date.

If the share was issued before the Effective Date, Par Value would be a reference to the par or nominal value of the share immediately before the Effective Date. If the share was issued on or after the Effective Date, the term Par Value would take on either one of the two interpretations below:

(i) where shares of the same class were in issue immediately before the Effective Date, Par Value would be a reference to the par or nominal value that the share would have had if it had been issued at that time.

(ii) where there were no shares of the same class in issue immediately before the Effective Date, Par Value would be that as determined by the directors.

"Share premium" is now understood to refer to any residual share capital in relation to the share.

"A right to return of capital on a share" is now understood to refer to a right to a return of capital of a value equal to the amount paid in respect of the share's Par Value.

The "aggregate par or nominal value of a company's issued share capital" is now understood to refer to the aggregate as it existed immediately before the Effective Date as increased to take account of the Par Value of any shares issued on or after the Effective Date; and reduced to take account of the Par Value of any shares cancelled on or after the Effective Date.

Company incorporated before the Effective Date
Any reference in the memorandum to the amount of share capital with which the company proposed to be or is registered; or the division of the share capital of the company into shares of a fixed amount is deemed to be deleted.

Company incorporated after the Effective Date
The memorandum of a company does not need to need to state the amount of share capital it proposes to be registered. The share capital would be based on the aggregate nominal value of the shares issued.

Share capital
The share capital of a company is treated as the aggregate nominal value of the shares issued by the company as it appears in the Accounting and Corporate Regulatory Authority's ("ACRA") records immediately before the Effective Date unless the company subsequently files a notification that its share capital should be treated otherwise ("Notification").

Any outstanding amount in a company's share premium account and capital redemption reserve becomes part of the company's share capital.

After the Effective Date, it is not mandatory for a company to declare any share premium and capital redemption reserves. A company that has received share premiums and have capital redemption reserves may update these amounts to the share capital with ACRA ("Notification") within six months after the Effective Date or before confirming their Summary of Returns.

A company may add any amounts which have been previously called and paid up in the Notification if these amounts have not yet been reported. Upon lodgment, the amount submitted will be added to the company's issued and paid up capital and the records of the company maintained by ACRA will be updated accordingly.

Abolition of the prohibition against issue of shares at a discount
Prior the Effective Date, the Act contained a prohibition against the issue of shares at a discount unless authorised by the company in general meeting and approved by the court. This prohibition has been removed.

Notwithstanding the repeal of the prohibition, other safeguards exist as a check to ensure that new issues of shares would not be effected at a price prejudicial to the value of existing shares or which would distort the overall capital structure of the company.

These include the requirement for new share issues to be approved by the company's shareholders, therefore providing shareholders with a platform at the general meeting to vote against the issuance of shares should the issue price not reflect their true value.

Also, all directors are required to act in the best interests of the company, to act honestly and to use reasonable diligence in the exercise of their powers. Both the Act and common law impose liabilities on any director who breaches his duties and obligations, which would include ensuring that the issuance of shares in the company is made at a price reflective of their true worth, whether in cash or some other form of consideration.