Citation: 11 Stellenbosch L. Rev. 182 2000

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LEGAL ASPECTS OF SHARE WATERING:A COMPARATIVE STUDY

Kenneth Kaoma Mwenda*LLB BCL MBA DBA FCI FRSAWorld Bank Washington DC USA

Sandson Schubert SilombaLLB LLMJudge in the High Court of Zambia

1 Introduction

"A share is the interest of a shareholder in the company measured by a sum of money, for thepurpose of liability in the first place, and of interest in the second, but also consisting of a seriesof mutual covenants entered into by all the shareholders inter se ... " 1

From the above definition, it is clear that whereas a share, as aninterest, entitles a shareholder to a number of rights, such as the right tovote at meetings and to participate in the profits of the company by wayof dividends, a share also attracts liability on the unpaid-up sharecapital of the company in the event that the company goes into liquidation. 2

These rights and liabilities represent some of the contractual relationshipsbetween the shareholders inter se3 and between the shareholders and thecompany.4 As Astbury J observes in the Hickman case:

"An outsider to whom rights purport to be given by the articles in his capacity as such outsider,whether he is or subsequently becomes a member, cannot sue on those articles, treating them as

contracts between himself and the company, to enforce those rights." s

The relationships between the shareholders inter se, and the share-holders and the company, are regulated mainly by the articles ofassociation. The articles are contractual rules and can thus be amended.6

However, in a strict commercial sense, equity interests held byshareholders in the company are commodities. Like any othercommodity, the allotted shares must be paid for. 7 A share, as a

* The author was a Rhodes Scholar and formerly Lecturer in Corporate Finance Law at the University

of Warwick (UK). Comments from colleagues who read through the earlier drafts of this paper aregratefully acknowledged. The interpretations and conclusions expressed in the paper are entirely thoseof the authors. They do not necessarily represent the views of the World Bank or Zambian judiciary.Borland Trustees v Steel Brothers and Co [19011 1 Ch 279; See also Re Paulin [1935] 1 KB 26; IRC vCrossman [1937] AC 26.

2 See Sutton's Hospital (1612) 10 Co Rep 1; Tillard v Brown (1668) 1 Lev 237; Salmon v HamboroughCompany (1671) 1 Ch Cas 204 HL.

3 London Sack & Bag Co v Dixon & Lugton [19431 2 All ER 763 CA.4 See below.

' [1915] 1 Ch 881 897.6 In most common law legal systems, such a procedure is found in company legislation.7 See Ooregum GoldMining Co of India Ltd v Roper [1892] AC 125; Re White Star Line [1938] Ch 458;

Tintin Exploration Syndicate v Sandys (1947) 177 LT 412; Re Bradford Investments pic (No 2) [1991]BCLC 688; Pro-Image Studios v Commonwealth Bank of Australia (1990-1991) 4 ACSR 586; SystemControls plc v Munro Corporation plc [1990] BCC 386.

LEGAL ASPECTS OF SHARE WATERING

commodity, has both economic and investment value. 8 Indeed, sharescan yield dividends.

9

In this article, we are not concerned with the legal aspects of paymentfor shares purchased from an individual shareholder, but with the legalaspects of payment for shares purchased from an incorporated company(more so, in the case of primary issues). The paper examines the efficacyof the law on payment for shares in the United Kingdom and Zambia.The United Kingdom has been chosen as a case study because corporatelaw in that country has had significant influence on the development ofcorporate law in many common law jurisdictions. In Zambia, the bulkof the law governing payment for shares is found in the Companies Act1994. However, the Zambian Companies Act 1994, unlike the EnglishCompanies Act 1985, has fewer rules governing the law on payment forshares. Whereas the rendering of financial assistance in acquisition ofcompany shares is regulated both under the Zambian and the EnglishCompanies Acts, l0 the allotment of shares at a discount, or "sharewatering" as it is commonly known, is not covered under the ZambianCompanies Act 1994. The English Companies Act 1985, by contrast, hasprovisions governing the allotment of shares at a discount. 1 Thus, inZambia, as long as the common law or the articles of association do notprovide that 'share watering' 12 is prohibited, companies have the libertyto engage in share watering. Defining share watering, Hamilton observes:

"Stock (shares) which was issued without a corresponding pay-in of assets valued at an amountequal to par was called 'watered stock' -stock issued not against assets but against water .... Itmust be emphasised that concepts of watered stock ... and the doctrines that came to surround

them, were and are limited in application to the issue of stock, that is, sales by the corporation ofits own stock. The doctrines do not in any way inhibit the shareholder's freedom to sell his stockat any price he can get, or to give it away if he wishes. Similarly, a corporation holding shares ofanother corporation may, like any other shareholder, dispose of them at any price it wishes orcan get. The reason why shareholders were held to pay in the par value of their shares is that thatwas the price exacted by the law for the corporate advantage of limited liability." 13

In Zambia, the standard articles of association found in schedule 1 tothe Zambian Companies Act 1994 do provide for rules governing theissue of shares at a discount. We will look at these rules later. Here,suffice it to say that when a company has adopted the standard articles inschedule 1 to the Zambian Companies Act 1994, the company can alterthe articles in the same manner as if it had formulated its own articles. 14

Besides, not all companies will adopt the standard articles since there isno obligation whatsoever to adopt these rules.

8 See infra n 14.

On dividend yields, see generally Brealey and Myers Principles of Corporate Finance (1991); Davis &Pointon Finance and the Firm: An introduction To Corporate Finance (1994).

10 This aspect is examined in great detail in Mwenda "Legal Problems Of Financial Assistance: A

Comparative Legal Study" 1997 The African Journal of International and Comparative Law 919-933;see also Mwenda Legal Aspects of Corporate Capital and Finance (1999) 70-94.See below.

2 For a discussion on 'share watering', see below.13 Hamilton Corporation Finance: Cases and Materials (1989) 75.14 See for example Andrews v Gas Meter Co [1897] 1 Ch 361 CA; Peter's American Delicacy Co Ltd v

Heath (1939) 61 CLR 457 (High Court of Australia).

STELL LR 2000 2

Underscoring views in this article is the theme that:

"in the commercially sophisticated world in which developing countries increasingly findthemselves, their financial legislation may demonstrate weaknesses which result in part from alimited number of indigenous professional specialists, in particular lawyers, and in part frompaying insufficient attention to parallel legislation in other jurisdictions." 15

In discussing the legal aspects of share watering, we will focus on:

(i) allotment of shares for cash;(ii) allotment of shares for consideration other than cash;

(iii) allotment of shares at a discount; and,(iv) allotment of shares at a premium.

It is important to observe that some of the restrictions, exceptions andrisks that are associated with payments for shares will also be discussed.We now look at the legal aspects of allotting shares for cash.

2 Allotment of shares for cash

Under the Companies Act 1985 of the United Kingdom, a companylimited by shares must state in its memorandum of association thedivision of the share capital into shares of a fixed amount. 16 The nominalamount of each share is what is known as the par value.' 7 We submit thatwhile the concept of par value might be relevant to primary issues ofsecurities in both private and public companies (for example atincorporation), this is not necessarily true for secondary trading ofsecurities. In the case of secondary trading, par value might only be usefulto issues in private companies, but not to issues in public companies. Oneof the reasons supporting this view is that in many countries shares in apublic company are traded on a stock exchange. For the most part of thisstock market trade the public can purchase shares in such companies, andit is therefore the market itself that will be expected to set the price of theshares.

The general rule under the English Companies Act 1985 is that whenshares are allotted they have to be paid-up in full.' 8 Payment must be inmoney or money's worth, including goodwill and know-how. 19 The lattermode of payment will be discussed in the next section when we deal withnon-cash considerations. Suffice it to say here that shares are deemed tobe paid-up in cash if the payment received by the company is in cash or isa cheque received in good faith and the directors have no reason forsuspecting that it will not be paid.2 ° Payment in cash could also involvean undertaking to pay cash to the company at a future date. 21

iS Mwenda "Zambia's Securities Act 1993 On Trial: The Case of Insider Dealing" 1997 Statute Law

Review (UK) 150 159. For a similar view, see Mwenda LegalAspects of Corporate Capital and Finance(1999) 3.

16 S 2(5)(a).17 See Ooregum Gold Mining Co of India Ltd v Roper [18921 AC 125.18S 599(l).19 S 99(l).20 S 738(2).21 S 738.

LEGAL ASPECTS OF SHARE WATERING

Another general rule applying to both private and public companies isthat no share can be allotted at a discount.2 2 In other words, shares cannotbe issued as fully paid-up at a consideration below their nominal value.Where shares are paid-up at a discount, the allottee will be liable to pay theallotting company an amount equal to the amount of the discount, withinterest at an appropriate rate. 23 Where the allottee has already sold theshares, the subsequent holder of the shares will be liable to pay thecompany an amount equal to the amount of the discount, with interest atan appropriate rate. 24 The subsequent holder is, however, allowed adefence if he can show that he is a bona fide purchaser for value andwithout actual notice. 25 Directors and any officer of the allotting companywho are responsible for the allotment will be liable to pay a fine.26

The principle that shares must be paid-up in full must be seen asimportant not only in safeguarding efforts to raise company finance, butalso in ensuring that fair trade in securities takes place. To hold otherwisewould amount to condoning "share watering" and thereby putting theexisting shareholders and the creditors at a disadvantage. We submit thatif a case of collusion between an allottee and the directors of the allottingcompany were to occur, for purposes of issuing shares at a discount(while the company is a going concern), the remedy must not only be tomake the allottee pay an amount equal to the discount; the allottee mustalso be made to forfeit his right to hold shares (only with regard to thoseshares acquired under the transaction) since he has shown that he canundermine the company by entering into dubious transactions. Thisproposal is made in the light of the fact that the law in the UnitedKingdom is silent on the fate of an allottee who subsequently makes apayment equal to the discount on the share price. We further submit thatalthough the English Companies Act 1985 provides for statutoryprovisions governing the law on payment for shares, the statute doesnot deal with situations relating to share price discounts on a single share.Section 100 of the English Companies Act 1985 covers only situationsrelating to the allotment of more than one share:

"A company's shares shall not be allotted at a discount .... "

What happens where only one share is allotted at a discount? It is ourhumble view that since an issued share is part of the share capital, thedirectors of the company, as persons who manage or who are custodiansof assets of the company, have unquestionable fiduciary duties towardsthe corporation they direct.2 7 On this basis, the directors can be heldliable for breach of fiduciary duties if they allot one share at a discount.28

22 S 100(1).23 S 100(2).24 S 112.2s S 112(1) and (3).26 S 114.27 See Shepperd Law of Fiduciaries (1981) 362. See also Regal (Hastings) Ltd v Gulliver [19421 1 All ER

378 and cfBoardman v Phipps [1966] 3 All ER 721.28 See generally 27 above and also Loose, Yelland & Impey The Company Director: Powers and Duties

(1993).

STELL LR 2000 2

3 Allotment of shares for consideration other than cash

While we consider the payment for shares by cash to be a preferredmode of payment, the exception to this rule in the United Kingdom isthat a private company can allot shares for non-cash consideration. 29 Theshortcoming here is that such a mode of payment is open to abuse. Inthe case of public companies, the English Companies Act 1985 providesas follows:

30

"(1) A public company shall not allot shares as fully or partly paid-up (as to their nominalvalue or any premium on them) otherwise than in cash unless-(a) the consideration for the allotment has been independently valued ...(b) a report with respect to its value has been made to the company by a person

appointed by the company (in accordance with that section) during the 6 monthsimmediately preceding the allotment of the shares; and

(c) a copy of the report has been sent to the proposed allottee."

Indeed, to protect existing shareholders and creditors from possibleshare watering, whenever public companies are making non-cashconsiderations, the law has the above statutory rule in place. This ruleis now examined in detail.

3 1 Non-cash considerations in the case of public companies

Under the English Companies Act 1985, there are two mandatoryprovisions which prohibit public companies from allotting shares fornon-cash consideration. 31 The first provision applies to situations whereshareholders make undertakings to do work or perform services in returnfor shares. 32 The second relates to the allotment of shares as fully orpartly paid-up for a consideration to transfer property to the companyafter five years from the date of allotment. 33 In the case of the latterprohibition, it is clear that a public company may allot its shares ifthe transfer of property is done within five years from the date of theallotment. The policy basis underpinning this prohibition is somewhatunclear. Perhaps, the rule is intended to ensure that the public is givenenough time to pay up for the shares. The criteria for arriving at a fiveyears period here is not clear. However, where either of the abovestatutory prohibitions is breached, the allottee is under a statutoryobligation to pay up an amount equal to the share price discount. 34 Inaddition, each of the directors of the allotting company responsible forthe allotment would be liable to pay a fine.35 Under the English Com-panies Act 1985, for a public company to accept non-cash considerationas payment for the shares, the consideration must be valued.3 6

29 English Companies Act 1985 s 103.

'0 S 103(1).31 See below.32 S 99(2). See also Pro-Image Studios v Commonwealth Bank 4 ACSR 586; Re White-Star Line [1938]

Ch 458.S S 102(l).

14 S 100 and 114." S 100 and 114.36 S 103(1) and 108.

LEGAL ASPECTS OF SHARE WATERING

Alternatively, the valuation will not be required in a case where the sharesare allotted by a company in connection with its proposed merger withanother company: that is, where one of the companies proposes toacquire all the assets and liabilities of the other in exchange for the issueof shares or other securities of the first company with those of the other,with or without any cash payment to the shareholders. 37

However, assuming the valuation report were to disclose that the non-cash consideration was of less value than the value of the shares beingallotted, and the directors go ahead and issue the shares, could it not beargued that both the directors and the allottee connived in the allotmentof the shares at a discount? We submit here that in the normal day-to-daytransactions, both the directors and the allottee might have notice of thevaluation report and its contents. If the directors, however, decide toignore the report and go ahead to issue shares at a discount, both thedirectors and the allottee (who has notice) should be held liable. This, inour view, would be a clear case of conspiracy to defraud the company ofits capital.38 One of the shortcomings here could be that in the caseof conspiracy to defraud the company of its capital, the burden of proofwould lie on the prosecution to prove beyond all reasonable doubt thatthere was a common intention to defraud.39

3 2 Non-cash considerations in the case of private companies

Under the English Companies Act 1985, a public company facesrestrictions in the way it deals with non-cash considerations, whereasa private company does not generally face such constraints.40 Thus, aprivate company may, by agreement, allot shares as fully or partly paid-up otherwise than in cash in return for the transfer of property or therendering of services to the company.4 1 Illustratively, in Re WraggLimited,4 2 Wragg and Martin was a partnership managed by twopersons. It was later registered as EJ Wragg Limited, a private company,whereby the two partners and another person became directors. Thecompany then bought the property of the partnership and an agreementwas executed and registered. The company went into liquidation and theliquidator filed a misfeasance summons to obtain payment for the shares.It was held that 'since the agreement could not be impeached the

S S 103(5).8 See Viscount Dilhorne in Scott v Metropolitan Police Commissioner [1975] AC 819: "[In my opinion it

is clearly the law that an agreement by two or more by dishonesty to deprive a person of somethingwhich is his or to which he is or would be or might be entitled and an agreement by two or more bydishonesty to injure some proprietary right of his, suffices to constitute the offence of conspiracy todefraud" (840). Dine Criminal Law In The Company Context (1995) 141, also observes: "The commonlaw crime of conspiracy to defraud is very wide. It will usually takes one of the three forms: (a) whereloss is suffered; (b) where the victim is deceived into taking an economic risk; and (c) where a publicofficial is induced by deception to act contrary to his public duty."

39 See standard texts on criminal law with regard to what constitutes fraud. See also R v Allsop (1976) 64Cr App R 29; Attorney General's Reference (No I of 1982) [19831 QB 751; R v Cooke [1986] AC 909.

40 See above.41 See above and below.42 (1897) 1 Ch 796.

STELL LR 2000 2

adequacy of the consideration could not be gone into.' Similarly, inBrownie and Other Petitioners,43 decided after Re Wragg, Darling LJruled:

"Where a company, in good faith, issues shares as fully paid-up in consideration of propertytransferred or services rendered, the court will not inquire into the value of that which wasaccepted by the company as an equivalent of money."44

What are the lessons to be learnt from the above cases? Under the lawof contract, freedom of contract is guaranteed. Once the parties haveagreed on the property or services to be exchanged for fully paid-upshares, the courts will not look into the adequacy of the consideration. Asa consequence, it will not be possible to determine if the shares have beenissued at a discount or at a premium. The result is that the company willoperate without knowing whether or not its shares have been watereddown. Also, the company will not know whether or not its shares havebeen issued at a premium and, of course, a premium account will nothave been created and set aside. 4 5 Such is the position for a privatecompany.

Generally, a private company, as the name suggests, does notdistribute its securities to the public. In many common law jurisdic-tions, private companies are perceived as small companies whoseshareholding is composed of close friends or relations who know eachother very well. This means that when shares are allotted the allottees willusually be close friends or family relations. 46 Such a close-knit "family ofshareholders", whose relationship is anchored on mutual trust andconfidence, will not be too willing to accept people from outside thefamily circle to buy shares in the company. By contrast, the position isdifferent for many public companies. The relationships between share-holders inter se within a public company are often based on a broadrange of grounds which include personal and impersonal grounds. Forexample, if a public company is listed on a stock exchange, it means thatmembers of the public could bid for shares in the company. In order toprotect the public, as well as the creditors, it is a matter of public policythat such companies must be protected by legislation from "sharewatering" which could arise from unvalued non-cash considerations. 47

In Zambia, the standard articles of association, contained in schedule 1to the Companies Act 1994, do not provide for the payment of sharesthrough non-cash consideration. Also, the Zambian Companies Act 1994itself is silent on the matter. Thus, a company that is properly advisedmight opt not to adopt these standard articles. Instead, to attract moreinvestment, particularly in the case of public companies, these companies

" (1898) 6 SLT 251.44 (1898) 6 SLT 251.45 See below.4 Particularly on incorporation of a partnership. See for example Re Wragg [1897] I Ch 796. See also

Mwenda Legal Aspects of Corporate Capital and Finance (1999) 48-68.47 See Re Keith Bray Pty Ltd(1991) 5 ACSR 450-452; Flitcroft's Case (1882) 21 Ch D 519; Hong Kong

Gas Co v Glen [1914] 1 Ch 527; Famatima Development Corp Lid v Bury [1910] AC 439.

LEGAL ASPECTS OF SHARE WATERING

might consider adopting certain aspects of the United Kingdom law onnon-cash considerations in their articles of association.

4 Allotment of shares at a premium

In the United Kingdom, before the enactment of the Companies Act1948, share premiums were not treated as part of the share capital.4 8 AsHarman J observes in the case of Henry Head & Co Ltd v RopnerHoldings Ltd.

49

"The question which I have to determine is whether the defendants were obliged to keep their

accounts in that way. That depends purely on s 56 of the Companies Act 1948 [CA 1985 s 130],which is a new departure in legislation and was, it is said, intended to make compulsory

that which had long seemed to be desirable, namely, the practice of putting aside as a reserve

and treating in the ordinary way as capital cash premiums received on the issue of shares at a

premium."

The reasoning behind the old view that share premiumswere not partof the share capital was that since par value was the nominal value of eachshare, any value of the issued shares above the par value was notconsidered to be part of the share capital. The excess amount was con-sidered to be part of distributable profits which the company could returnto the shareholders as dividends. 50 After 1948, the position changed. Acompany could issue shares at a premium (normally during boom periodswhen the company is said to be enjoying good business) at aconsideration in cash or in kind which exceeded the nominal value ofa share. 51 Indeed, the position nowadays is that once shares are issuedat a premium, a sum equal to the aggregate amount or value of the sharesmust be transferred to a premium account. 52

5 Allotment of shares at a discount -the Zambian case.

We pointed out at the start that the standard articles of associationfound in Schedule 1 to the Zambian Companies Act 1994 include articlesgoverning the payment for shares. 53 However, the standard articles donot state that the shares issued to the allottee must be paid-up when theallotment is made. Regulation 15 of the standard articles simply permitscompany directors to accept partial or full payment from an allotteebefore a call is made on the unpaid amount. This indicates that whenshares are allotted an allottee can decide to pay immediately or in future.However, when a call is made on the unpaid-up share capital, the allotteemust pay up.54 If a member fails to pay up the amount called on his

48 See Davies Gower's Principles of Modern Company Law 6ed (1997) 282-294. See also below.49 [19521 Ch 124.50 See generally Henry Head & Co Ltd v Ropner Holdings Ltd supra.51 See the repealed English Companies Act 1948 s 56. Cf English Companies Act 1985 s 130; see also

Shearer (Inspector of Taxes) v Bercain Ltd [1980] 3 All ER 295; Drown v Gaumont British Corp [1937]Ch 402; Re Ratners Group plc [1989] BCLC 612; Re Ossory Estates plc [1988] BCLC 213.

52 English Companies Act 1985 s 130.53 See above and below.5 Regulation 9 of schedule I to the Zambian Companies Act 1994. Schedule I contains the standard

articles of association. There is no mandatory obligation to adopt the standard articles. These articlescan be modified or replaced altogether by other contractual rules.

STELL LR 2000 2

shares at the time and place mentioned in the notice, he may be chargedinterest on the principal amount. 55 There are other consequences offailing to pay up for the shares. Under regulation 17, the companydirectors will be required to give what could be considered as the finalnotice, calling on the allottee to pay up the shares and to add interest tothat. Failure to take heed of the notice may result in the shares beingforfeited to the company. 56 The company could then re-issue the sharesto another person. In the standard articles it is also provided that duringthe period when the call for payment has not been made, the allottingcompany has a first and paramount lien over every share that has notbeen fully paid-up. 57 As long as part of the share capital has not beenpaid-up, the lien will extend to dividends payable in respect of the issued,but unpaid-up share capital.58

In addition, it is important to observe that the Companies Act 1994 ofZambia does not prohibit the sale of shares at a discount. 59 The law doesnot make any specific reference to the issue of shares at a discount. Forexample, in the case of ZAMANGLO Industrial Corporation v ZambiaPrivatisation Agency and The Attorney General,60 the granting of adeclaratory order for the acquisition of additional shares at a discount ina privatised company followed the disclosure by the plaintiff (thedisclosure was not contested by the state, as defendant) that anothershareholder, with similar standing as the plaintiff, had been issuedadditional shares at a discount.

6 Allotment of shares at a premium -the Zambian case

The Zambian Companies Act 1994, like the English Companies Act1985, has provisions permitting the allotment of shares at a premium. 61

Section 61(1) of the Zambian Act provides as follows:

"Where a company issues shares at a premium, whether for cash or otherwise, a sum equal tothe aggregate amount of value of the premiums on these shares shall be transferred to anaccount, to be called 'the share premium account'...."

Thus, under the Zambian and the English Companies Acts,62 sharesissued at a premium may be paid-up in cash or otherwise. 63 We shallexamine below what constitutes "otherwise". Suffice it to say that theallotting company must set aside a share premium account to whichthe aggregate amount or value of the premiums must be transferred. 64

" Schedule I of the Zambian Companies Act 1994 reg 12.56 Schedule I of the Zambian Companies Act 1994 reg 16 and reg 17.

" Schedule I of the Zambian Companies Act 1994 reg 16.58 Schedule I of the Zambian Companies Act 1994 reg 16.

59 See below.60 996/HP/706, unreported Zambia High Court case.6 Zambian Companies Act 1994 s 61. Cfthe position in the United Kingdom as discussed above.62 S 130(1) of the English Companies Act 1985 provides in part that: "If a company issues shares at

a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of thepremiums on those shares shall be transferred to an account called 'the share premium account'."

63 Zambian Companies Act 1994 s 61.Zambian Companies Act 1994 s 61.

LEGAL ASPECTS OF SHARE WATERING

Indeed, both the Zambian and the English Companies Acts do notdefine the term "otherwise" as it applies to the share premium provision:"if a company issues shares at a premium, whether for cash orotherwise." 65 Here, we can only discern one logical meaning and that isthat the term "otherwise" refers to non-cash considerations since theseare something else other than cash.66 However, it might also be thatwhilst in the United Kingdom non-cash considerations for shares in apublic company require valuation of the consideration, 67 valuation is notnecessary in Zambia since the Zambian Companies Act 1994 saysnothing on valuation of non-cash considerations. An amendment to theZambian Companies Act 1994 on this matter would improve the law.

7 ConclusionThis article has examined the efficacy of the law relating to the

payment for shares in Zambia and the United Kingdom. Matters such asshare watering and non-cash considerations must not be left to be dealtwith by standard articles of association. Indeed, as we have shown in thisstudy, not all companies in Zambia have adopted the standard articles.

Problems which often arise with what is commonly known as "legaltechnical assistance" explain some of the shortcomings of the law in adeveloping country such as Zambia. Legal technical assistance, a conceptwhich is mainly propagated by Western international financinginstitutions, 68 has often entailed the donors themselves sending oversome "experts" to developing countries to draft the laws of thesecountries. No doubt, many a time this form of technical support hasbrought along with it unsuitable legislative models. This is becausedeveloping countries increasingly find themselves in a commerciallysophisticated world, where their financial legislation often demonstratesweaknesses which result mainly from a limited number of indigenousprofessional specialists, in particular lawyers. 69

OPSOMMINGHierdie bydrae ondersoek die doelmatigheid van regsreels wat die betaling vir aandele gekoop

van 'n maatskappy reguleer. Die posisie in die Verenigde Koninkryk word ondersoek aangesiendaardie land die bron is van reils wat deur verskeie common law jurisdiksies oorgeneem is. Aandagword ook geskenk aan die posisie in ZambiE aangesien die ervaring daar dui op sekere gebrekewat so In proses van oorname kenmerk in ontwikkelende lande -veral indien daar van

buitelandse deskundiges gebruik gemaak word. Die outeurs dui op sekere verskille in di6 stelsels,veral met betrekking tot die "verwatering" van aandele. 'n Onderskeid word dan getref tussen dieredls wat gaan oor (i) die uitreik van aandele vir kontant; (ii) die uitreik van aandele virteenwaarde anders as kontant; (iii) die uitreik van aandele teen 'n afslag; en (iv) die uitreik vanaandele teen 'n premie. In di6 verband word veral gelet op sekere gebreke in die Zambiesemaatskappyewetgewing.

65 See s 61(1).66 On what constitutes cash, see Clealands Case (1872) LR 14 Eq 387; Kent's Case (1888) 39 Ch D 259;

Re Hiram Maxim Lamp [190311 Ch D 70; Re Jones, Lloyd & Co Ltd (1889)41 Ch D 159; Cf EnglishCompanies Act 1985 s 739(l).

67 See above.

68 See generally Faundez "Legal technical assistance" in Faundez (ed) Good Government and Law: Legal

and Institutional Reform in Developing Countries (1996) 1-24.69 See Mwenda 1997 Statute Law Review (UK) 159.