Here’s what you need to know if you want to vary or cancel rights for a certain share class.
In a rush? jump ahead.
Shares can be ordinary or there can be different share classes that have different rights.
For example, you may have a silent investor that is not making decisions. In this case, you might allocate “A” class shares and attach dividend rights but no voting rights.
Check the example share classes in the shareholder agreement guide. We won't explore them again here.
If you have a constitution that deals with varying or cancelling rights, you’ll have to follow those rules.
If you have a constitution that does not cover varying or cancelling rights or you do not have a constitution then you’ll need a special resolution at a meeting:
The company must give written notice of the variation or cancellation to shareholders of the share class within 7 days after the variation or cancellation is made.
If a company with 1 class of shares issues new shares, the issue will vary the rights for shares already issued if:
If shareholders in a class do not all agree by resolution or written consent to:
Now, there is a limitation period of 1 month for this action, after the variation, cancellation or modification.
The variation, cancellation or modification takes effect 1 month after (if not application is made to the court within the month); or
If an application is made to the court to have it set aside, when the application is withdrawn or finally determined.
A court may set aside the variation, cancellation or modification if it’s satisfied that it would unfairly prejudice the applicants.
After the court order is made, it needs to be lodged with ASIC within 14 days.
Now, this scenario is better. It’s much easier if you do have unanimous support either by resolution or written consent.
In this case, the revision will take effect on the date of the resolution or consent or on a later date stated in the resolution or consent.
A company must lodge with ASIC a notice setting out particulars of:
The company will have to give ASIC notice within 14 days after the division or conversion.
Shareholders may ask for copies of documents lodged with ASIC for the variation, cancellation or modification.
If the company requires the shareholder to pay for the copy, the company must send the documents within 7 days after the request, or within any longer period approved by ASIC.