Varying and cancelling share class rights
Updated: 7 December 2019
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.
What are share classes?
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 your constitution sets out a procedure
If you have a constitution that deals with varying or cancelling rights, you’ll have to follow those rules.
No constitution rules
If you have a constitution that does not cover varying or cancelling rights or you do not have a constitution at all, then you’ll need a special resolution at a meeting:
- for a company with a share capital of the class of shareholders holding shares in the class; or
- for a company without a share capital of the class of shareholders whose rights are being varied or cancelled.
Notice of variation or cancellation
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.
Issuing new class of shares varies rights
If a company with 1 class of shares issues new shares, the issue will vary the rights for shares already issued if:
- the rights for the new shares are not the same as the rights to shares already issued; and
- those rights are not provided for in the constitution, a notice, document or resolution lodged with ASIC.
If there’s no unanimous support to vary, cancel or modify a share class
If shareholders in a class do not all agree by resolution or written consent to:
- variation or cancellation of their rights; or
- modification of the constitution (if any) to allow their rights to be varied or cancelled,
then shareholders with at least 10% of the votes in the class may apply to the court to have the variation, cancellation or modification set aside.
Now, there is a limitation period of 1 month for this action, after the variation, cancellation or modification.
When the variation takes effect
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If an application is made to the court to have it set aside, when the application is withdrawn or finally determined.
When the courts set aside a variation
A court may set aside the variation, cancellation or modification if it’s satisfied that it would unfairly prejudice the applicants.
Lodgement with ASIC
After the court order is made, it needs to be lodged with ASIC within 14 days.
If there is unanimous support for a variation, cancellation or modification
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.
Lodging documents and resolutions with ASIC
A company must lodge with ASIC a notice setting out details of:
- a division of shares in the company into classes if the shares were not previously divided; and
- a conversion of shares into a class of shares in the company into shares in another class.
The company will have to give ASIC notice within 14 days after the division or conversion.
Shareholder right to copies of documents and resolutions
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.