We often get asked by clients who are incorporating a new company how many shares should be issued on incorporation, and what the value of each share should be. This is actually an issue for the client to decide, depending on its circumstances. However, there are some basic considerations that will apply in almost every case and that can help to reach a decision on the number and value of shares.
What is a share?
First, some brief background on the nature of shares, any payment for shares. Where a company has shares (which most do), the ownership rights in the company are divided into separate units. Each share is a unit of ownership of the company.
Number of shares
A company in Myanmar can have as little as one share. For a new company that will have multiple shareholders, it makes sense to choose a number of shares to be created at the outset that will easily reflect the intended ownership proportions of the original shareholders and the intended share capital contributions at the outset. Let’s say, for example, that there will be three shareholders – A, B and C – with shareholder A to own 60% of the company, and shareholders B and C to own 20% each. It would then be neat and simple if 100 shares are issued, with 60 being issued to A and 20 each being issued to B and C. If none of the shareholders will be contributing any significant share capital at the start, the price per share could be just USD1 each; or MMK10,000 each if they prefer to have the shares denominated in MMK. (USD and MMK are the only two choices of currency for share value allowed in Myanmar).
Share price and share capital
Shareholders (also referred to as “members”) usually have to ‘buy’ that unit of ownership by agreeing to contribute money to the company. (Sometimes other items of value can be contributed to the company in payment for shares instead of money). A price therefore needs to be set for each new share issued by a company. “
The total amount paid for the shares in a company is usually called “share capital” or “equity capital”. In the context of the term “equity capital”, the word “equity” has the meaning of “relating to ownership”).
Any price can be set for the shares to be issued by a new company. It can be a very small amount. A small price per share might particularly be relevant when forming a new company that will be starting business ‘from scratch’ and does not yet have any business or assets. However, if the new shareholders are planning to contribute money to the company at the outset to fund its start-up activities they should consider whether this funding will be contributed as share capital. If so, either the price per share or the number of shares (or both) should be high enough to cover the share capital contributions from the shareholders.
If any of the shareholders will be contributing share capital at the start, this should be considered in relation to the number and price per share. For example, if USD10,000 of share capital will be contributed as initial funding, the shareholders may want to have the company issue 10,000 shares of USD1 each, or 1,000 shares of USD10 each. However, if the shareholders want more time to think about this, they can also incorporate the company with, for example, just 100 shares of USD1 each and then deal with the contribution of further share capital for start-up funding after incorporation. The shareholders should also bear in mind that once share capital is paid to the company it is a somewhat difficult to take it back again from the company. To take back the share capital from the company itself, the relevant shares have to be cancelled. This process requires shareholder approval by special resolution and notifications to DICA.
Fully-paid and partly-paid shares
The share price has to actually be paid to the company. Usually this will be paid by the new shareholder itself, but it can be paid by someone else on the shareholder’s behalf (as long as the source of the payment does not raise any compliance issues for the company, like potential anti-money laundering issues). However, the share price does not have to be paid in full straight away. The company can issue shares as partly-paid shares. These are shares for which part of the total price has been paid to the company, but not all of it. Most of the time, all shares are fully paid up when they are issued to the shareholders. However, for example, a shareholder could receive 20 shares of USD1 each, requiring payment of a total of USD20 of share capital. The shareholder could pay only USD10. Those shares will then be partly-paid in the amount of USD10.
Where a shareholder receives an issue of new shares that are partly paid, the outstanding balance of the share price not yet paid becomes a debt owed by the shareholder to the company. This debt can be left outstanding for a long time if the company and the shareholder agree. But, unless there is an agreement to the contrary, the company can request that this debt be paid at any time. (This request is referred to as making a “call” on the partly paid shares). Therefore, the company register information has to record how much the total share capital should be, how much has actually been paid and how much is still left unpaid (and also record this information on a per shareholder basis) so that the company and the shareholders know how much of this share capital debt is still owed to the company.
Conclusion
Choosing the number and price of shares to be issued by a new company is not a matter for which there is a ‘right’ or ‘wrong’ answer. It is more a matter of choosing what is sensible and relevant based on the circumstances. The above general discussion outlines the basic issues that the proposed shareholders of a new company should consider in choosing the number and price of their new shares. If you are considering incorporating a new company, we will be happy to discuss share structure and any other structuring issues with you to help you come to a sensible conclusion.