Similar provisions apply in new zealand with new

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the Corporations Act automatically apply as default rules for internal management. Similar provisionsapply in New Zealand, with New Zealand companies bound by the Companies Act and allocated an IRDnumber that doubles as a GST number.Shareholder rightsWhen registered, the company may begin issuing ownership rights in the form of shares. Different classesof shares carry different rights. The ownership rights of a share are stated in the company’s constitutionor the replaceable rules. The three major ownership rights are: the right to vote, the right to share inthe company’s profit, and the right to a residual claim in the event of the company being liquidated. Atthe company’s annual general meeting, each shareholder has one vote by a show of hands. In the caseof a poll, every fully paid share held by each shareholder entitles that shareholder to one vote. When acompany has only one class of shares, these shares are referred to asordinary shares. Each ordinaryshare gives the shareholder the ownership rights pictured in figure 10.2. Ordinary shares represent theresidual ownership interest in a company.Preference shares are a class of shares that have priority over ordinary shares with respect to dividendsand/or repayment of capital in the event of the company being wound up, i.e. liquidated and ceasing toexist. Preference shares often do not have voting rights. In some cases, preference shares are disclosedas debt, but that is covered in more advanced accounting texts.LEARNING REFLECTION AND CONSOLIDATIONReview it1. What are the advantages and disadvantages of a company compared with a sole proprietorship and apartnership?2. Identify the principal steps in forming a company.3. What rights are inherent in owning ordinary shares in a company?CHAPTER 10Reporting and analysing equity625Copyright © ${Date}. ${Publisher}. All rights reserved.
FIGURE 10.2Ownership rights of shareholders1. To vote in the election of boardof directorsat annual general meetings. To vote on actionsthat require shareholder approval.2. To share the companyprofitsthrough receiptof dividends.3. To share in assetsonliquidation in proportionto their holdings. Thisiscalled a residual claimbecause ownersare paidwith assetsthat remainafter all claimshavebeen paid.DividendsShareholdersShareholders have the right:LendersCreditors10.3Share issuesLEARNING OBJECTIVE 10.3Record the issue of ordinary shares.Michael Hill International Limited became a public company and listed on the New Zealand StockExchange in 1987. At that time, management evidently decided that the company would benefit from theinjection of cash that a public issue of its shares would bring. When a company decides to issue shares,it must resolve a number of basic questions. How many shares should it issue? How should the sharesbe issued? At what price should the shares be issued? These questions are answered in the followingsections.

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