New Payment Options when Purchasing Shares

Come January 1, persons investing in companies will be given additional payment options when purchasing shares issued by those companies.
This, as the new Companies Act 2004 has broadened the category of consideration deemed acceptable as payment for shares, in lieu of cash, to include debt security. Consideration normally includes such things as property and past service supplied to a company.
Tax Principal at Deloitte and Touche, Ethlyn Norton-Coke, addressing the Institute of Chartered Accountants of Jamaica (ICAJ) seminar at the Jamaica Conference Centre recently, explained that, “as consideration for shares, the definition of property now includes debt security arising from mergers, acquisitions, schemes of arrangements, reorganisations and reconstructions and promissory payments on government securities or debt instruments guaranteed by financial institutions”.
The concept of using consideration other than cash as payment for shares has always existed but was never defined in the Companies Act and did not include debt security. The new provision means that company directors would need to make a determination as to whether such consideration represents fair equivalent value to the money that the company would receive if the shares had been issued for cash.
Mrs. Norton-Coke explained that before passing the requisite resolution to accept consideration other than cash in payment for shares, the directors must, in the case of past services, “have a qualified accountant estimate the value of the services to the company in money terms” or in the case of property or any other case, “have the consideration valued by a qualified accountant, valuer or surveyor”. She pointed out that the valuation should not be older than four months or 120 days.
According to Mrs. Norton-Coke, “no allotment by a company of shares for consideration other than cash sales shall be made unless the directors have passed a resolution that the allotment be made”.
The resolution must state, “the nature of the consideration, the value of the consideration and the extent to which the shares to be issued in respect of the consideration will be credited as paid up by virtue of it”, the Tax Principal pointed out.
Under a new provision in the 2004 Companies Act, every company is now required to maintain a separate “stated capital account” for each class or series of shares it issues and should no longer have these collectively recorded as “paid up capital”.
So, whether they are “A” or “B” class, or preference shares, they would need to be segregated in the various stated capital accounts, Mrs. Norton-Coke explained. She pointed out that the new law requires that as of January 1, 2005, companies should add the full amount of any consideration received for any shares that had been issued to the appropriate stated capital account, which would give a full picture of the total equity of the company on its balance sheet.
The ICAJ seminar was held in association with the Office of the Registrar of Companies (ORC) and was aimed at educating accountants on the provisions of the new Companies Act. The ORC is responsible for implementing the Act when it comes on stream in January 2005.
The ICAJ seminar is among a series of speaking engagements that the ORC is having with various stakeholders to educate and prepare persons to operate under the new legislative regime.