Shares in Private Company

Let’s start from the definition of Share. In accordance with AIFC Companies Regulations, the Share, in a company, means a share in the share capital of the company, of whatever class of share it may be.

So, we can get two key points from this definition:

  1. Shares represent a proportioned interest in the company;
  2. There may be a different classes of shares.

Given that shares represent a proportional interest in a company, it must have a fixed nominal value. The aggregate nominal value of all shares constitutes the company’s share capital. Correspondingly, the total nominal value of shares held by an individual shareholder constitutes their proportional interest in the company’s equity.

It is crucial to emphasize that, in accordance with section 43 of the AIFC Companies Regulations, the Company is prohibited from allotting shares that do not have a fixed nominal value or at less than its nominal value. A violation of this provision renders the allotment null and void. Nonetheless, the Company is permitted to allot shares at a price exceeding their nominal value, giving rise to a share premium.

The bearer shares are also prohibited under the AIFC Companies Regulations.

A private company is not subjected to a minimum share capital requirement. However, this provision should not be misconstrued to imply that a private company’s share capital can be zero. This is due to the inherent nature of share capital and the stipulated provision that each share must possess a fixed nominal value.

Shares are considered the personal property of a shareholder. A shareholder is free to utilize their shares in various ways, including selling, gifting, or pledging, without obtaining approval from either a Shareholders’ resolution or the Board of Directors. Exceptions to this are only applicable if explicitly stipulated in the Company’s Articles of Association or Shareholders’ Agreement.

Shares in a private company may not always be fully paid. In such instances, the Company retains the right to call, requiring the shareholder to pay the allotment price within the timeframe specified in the call notification. There are also situations where the shares may be allotted as a fully paid, for example, the shares under employee shares scheme or shares allotted as a bonus shares.

One of the main features that the private company registered in AIFC can provide is an ability to issue a different classes of shares. This flexibility can be used in various ways so as creation of an employee shares, investor shares, founders and managers shares and etc.

It is possible for a company to issue different classes of shares, each with a distinct nominal value. More importantly, these classes can carry varying voting rights; some may offer multiple votes per share, while others might offer none at all. These classes can also be endowed with unique rights. For example, investor shares might have priority in dividend payments compared to ordinary and employee shares or could be allocated a fixed percentage of dividends that is not proportional to the number of shares held. A private company also has the option to issue redeemable shares, which can be instrumental in various corporate structuring strategies.

This flexibility, coupled with the capacity to utilize shares as a potent tool for corporate structuring, underscores one of the AIFC’s distinctive features.

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