Share Capital


Subscription is the acceptance by the subscriber of the offer to subscribe for shares made by the promoters or their agents (usually a bank). By subscribing the subscriber promises to take up the number of shares subscribed. The shares may be paid for in cash or in kind, but never in the form of services, because the capital of a company is conceived as a security (collateral) to creditors of the company who can never proceed against shareholders personally for the debts of the corporation beyond their investment.  The exception is where the company has unlimited liability – see 3.23 below

Note that by virtue of subscription promoters are bound to either constitute the company or reimburse the amount of subscription if the company is not constituted within six months from the date the proposed company account was opened at a bank.

For their part, subscribers may not withdraw their subscription; they must honour their promise to take up shares. The option open to a subscriber who no longer desires to become a shareholder is for him to assign (transfer) his undertaking (promise) to take up shares


 Share Capital

The share capital of the public limited company varies depending on whether the company is offering its shares to the public or not. For a company that does not offer its shares to the public the minimum capitalization requirement is 100 million RWF and 200 million RWF for a company that offers its shares to the public.

 Payment for Shares

To subscribe is a promise to make payments for the shares subscribed. The shares have to be paid for so as to ensure that the company is born. If the shares are to be paid for in cash, at least 1/3 of the amount representing the share capital must be paid up and the remainder within two years from the birth of the company. Payment may be effected in cash, certified cheque or Treasury bill.

Note that payment in cash is required to be lodged in a special account opened at a bank in the name of the company being formed.  The organs of management of a company cannot draw from this account except the notary who was present during the constituent ordinary meeting informs the bank in writing that the articles of association have been adopted.

On the other hand, if payment is to be effected in kind then all the shares representing the share capital in kind must be entirely paid up. The evaluation of the shares in kind is admissible after corroboration by experts appointed by the promoters. In addition, within 6 months from the date of birth of the company the manager and auditors are required, on pain of their joint and several liabilities, to verify the evaluation of the payments in kind. Should the verification reveal an over valuation the managers and auditors shall without prejudice to whatever action that may be taken against the defaulting shareholders, proceed to adjust the share capital and a suppression of the redundant shares

Note that as long as the verification has not been undertaken by the manages and auditors, the shares cannot be negotiated (transferred)


Ordinary shares Debentures


One of the major reasons that promoters select the corporate form of business is the variety of funding sources available to the public limited companies.  An important source of financing is the sale of company securities. A security is evidence of a debt or property (ownership), such as a share, or debenture. The basic legal distinction between them is that a share constitutes the holder a member of the company whereas the debenture holder is a creditor of the company but not a member of it.


Rights in a company are represented by negotiable instruments called shares. A share may be defined as “the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of natural covenants entered into by all the shareholders inter se”. The contract contained in the articles of association is one of the original incidents of the share.

A share is not a sum of money… but is an interest measured by a sum of money and made up of various rights contained in the contract, including the rights to a sum of money of a more or less amount”.

The shares of each shareholder represent a fraction of the share capital of the company. Certain rights are attached to these shares, they are:

  • The right to vote during general meetings (annual or special);
  • Right to dividends;
  • Rights to return of capital on a winding up i.e., liquidation (or authorized reduction of capital.

 Right to vote:

A shareholder has a right to attend meetings and to vote. The right to vote attached to shares must be proportional to the fraction of capital it represents – 1 share = 1 vote. Nevertheless, the right to vote attached to shares whose contribution is in kind is suspended if the shares have not been entirely paid up.

 Right to dividend

If at the end of a financial year shows an excess of profit over losses, this excess constitutes profits for the financial year and is available for distribution to the partners/shareholders as dividends proportional to the capital it represents.  Once distributed, dividends, corresponding to the profits realized by the company, are finally vested in the shareholders. As such, if in a subsequent financial year the company does not make profits, the creditors of the company cannot compel the shareholders to restore to the company the sums as dividends, which were paid in accordance with the law.

However, if profits are not realized at the end of the financial year, the company is not competent to pay dividends. The payment of fictitious dividends amounts to a reduction of the share capital of the company. We stated earlier that the capital of a company constitutes a security (collateral) to company creditors.  Accordingly, if fictitious dividends are distributed to shareholders creditors have a right to protect their interest by requesting the court to nullify the distribution and compel the shareholders to restore to the company the sums paid as dividends in violation of the law.

 Right to return of capital on liquidation (or authorised reduction of capital)

The liquidation of a company requires the distribution of losses or the surplus of liquidation as the case may be to the shareholders. In the case of an authorised reduction of capital shareholders are entitled to part of the capital to the extent of the reduction.

Types of Share Contributions

Contributions to the capital of a company may be made in cash or in kind. If the contribution is in the form of cash at least 1/3 of the amount due must be paid at the time of the formation of the company and the balance within two (2) years from the date the company is formed. If the contribution is in kind it must be entirely paid up at the time of formation of the company.

Negotiability of shares

Negotiability of shares means the transfer of shares. We stated that shares are negotiable instruments issued by the company in return for the contribution of the shareholder to the capital of the company. In principle, shares issued by a public limited company are freely transferable. The procedure to be followed depends on the nature of the share is whether it is a registered share or bearer share

Registered shares

The registered share is represented by registration in the register of shareholders maintained by the company at the registered office (headquarters).  Upon registration the director issues a certificate to the member (shareholder) certifying that he is the holder of a specified number of shares (giving their distinguishing numbers if they have them and stating the extent to which they are paid up). The purpose of this is to give the shareholder some document, which he can use as evidence of his title. It also provides the company on a check on the identity of the registered holder and the company will not normally register any dealing unless the certificate is produced.

Note that the holder’s legal rights depend not on the certificate but upon entry in the register, and the certificate is merely a declaration by the company stating what these rights are and affording prima face evidence of them.

Registration may be made by the party himself or a director and the certificate should be delivered within one month of registration. A certified copy of the registrations in the register is required to be deposited by the directors within one month of registration at the ORG.

Negotiation of registered shares shall be effected by transfer on the registers of the company, the holder’s rights resulting from the single registration on the company’s register.

Bearer shares

In contradistinction to a registered share is the bearer share. It is represented by a piece of paper paginated and detached from a counterfoil book carrying a number of indications but the most important characteristic is the absence of a name. A least two directors must sign the paper.


The holder’s rights depend on the mere possession of the paper. Consequently, negotiation is by simple delivery of bearer shares. The bearer of the share shall be deemed to be the owner. Dividends, if any are due and payable, are paid on physical presentation of the bearer share at the company’s registered offices to the person holding the bearer share.  Because the bearer share has no name, the owner cannot be notified of any meetings or when dividends are due.


 Restrictions on the transfer of shares

Although shares (registered or bearer) are freely transferable, they can only be transferred after the company has acquired legal personality i.e., after registration in the Commercial Register. Furthermore, the articles of association may low down certain limitations to the transfer of shares, e.g., transfer to the company’s competitors or a certain class of persons.

Note that if a company allows bearer shares the holder is at liability to convert his bearer shares into registered shares and vice-versa




In order to qualify as a shareholder of a company each partner must contribute to the capital of the company. In return for their contribution the partner shall receive shares issued by the company.

A partner may contribute to the company:

  • Money, as a contribution in cash;
  • Rights on moveable or immovable tangible or intangible property, as a contribution in kind:
  • Services as a supply of labour.
Contributions in cash

Contribution in cash is required to be effected by the partner (shareholder) transferring to the company the ownership of the amount of money that he has pledged to contribute. The date of payment depends on the type of company. For partnerships, the partnership agreement may stipulate the time within which payment (contributions) is to be effected.  As regards the SARL i.e., private limited company contributions in cash must be fully paid up at the time of the formation of the company. Cash contributions are said to be fully paid up when the company has acquired ownership and the contributions are fully and finally paid up.


As regards the SA, i.e., public limited company a minimum of 1/3 of the contribution is required to be paid up at the time of formation of the company and the balance within 2 years from the day the company is formed.

Note that in case of delay in payment, the balance due to the company shall automatically bear interest at the official rate from the date payment became due.

Contributions for shares not in the form of cash

From Article 31

Where a share is issued for consideration other than cash, the Board of directors shall determine the cash value of that consideration for the purposes of sub-paragraphs 1° or 2° of paragraph 2 of this article.

Where a share involves an obligation other than the obligation to pay, and that such obligation is met by the shareholder:

  • the Board of directors shall determine the cash value, if any, of that performance;
  • the cash value of that performance shall be deemed to be a call which has been paid on the share for the purposes of sub-paragraphs 1° or 2°of paragraph 2 of this article.


  Contributions in kind

Contributions in kind is made by the transfer of the property or rights to use the property contributed and the effective conveyance to the company of the property to which those rights are attached. It is mandatory for contributions in kind to be fully paid up at the time of formation of the company.

Where the contribution is in the form of property the contributor shall stand warranty (security) for the company as a vendor for the buyer.

However the risk of the property passes to the company on the day of the transfer.  On the other hand if contribution is in the form of a mere right to use the property contributed i.e., the contribution is in the form of a leasehold, the contributor shall guarantee the company undisturbed use of the property contributed, like a lesser for lessee. However, the risk of the property remains with the shareholder (partner).

Contribution in the form of services

Contribution may also be in the form of services.  Where contribution is in the form of services the contributor is obliged to render services in the form of labour to the company. In the absence of a provision or clause as to the time frame within which such services is to be rendered, the presumption is that the services will be supplied during the life time of the company.  Article 31 sub para 2 may be read as to imply that the service in lieu of cash payment has been performed.

Previously, thecontribution in the form of services could only be made to companies whose shareholders (partners) had unlimited liability. Thus, contribution in the form of services is available to partnerships and not to “companies”.  The rationale for the exclusion of companies may be explained by two factors. The one, is that, since share contributions are required to be entirely paid up either at birth or within two years of the existence of the company, contributions in the form of services cannot satisfy this requirement. Secondly, the capital of a company is conceived as security (collateral) to creditors of the company, as such, services cannot serve as security.


Note that a shareholder’s (partner’s) contribution may be in the form of aclaim.  In the event where the contribution is in the form of aclaim  all that is required of the contributor is to establish the existence of the debt and not the solvency of the debtor

Subject to the constitution of the company, different classes of shares may be issued in a company. Article 76 Shares in a company may :

  • be redeemable;
  • confer preferential rights to distributions of share capital or income; 3 confer special, limited, or conditional voting rights;  4not confer voting rights.



Any existing company may at any time, convert any class of shares of the company into shares of no par value provided that seventy five per cent (75%) of shareholders vote for the resolution. Notice of the terms of the conversion is given to the Registrar General for registration within forteen (14) days of the approval of the conversion.

The shares converted shall not affect the rights and liabilities attached to such shares. In particular, such conversion shall not affect:

  • any unpaid liability on such shares;
  • the rights of the holders of the shares in respect of dividends, voting or repayment on winding up or a reduction of share capital.




The law chose the expression powers instead of rights. This difference in terminology doesn’t present a big interest especially as the rights and the powers are synonymous.

Articles 140 to 142 of the law articulate responsibilities of the shareholders in these terms.

The powers conferred to the shareholders of a company shall be exercised :

  • at a meeting of shareholders;
  • by a resolution of shareholders in lieu of a meeting;
  • by a unanimous resolution;
  • by a unanimous shareholder agreement.


The power conferred to shareholders may be exercised by an ordinary resolution. An ordinary resolution shall be a resolution that is approved by a simple majority of the votes of those shareholders entitled to vote and voting on the matter which is the subject of the resolution.

The shareholders exercise a power to:

  • adopt articles of association , if it has , to alter or to revoke them ;
  • approve a major transaction;
  • approve an amalgamation of the company;
  • put the company into liquidation;


Such power shall be exercised by special resolution.


With regard to the modification of the rights, the article 149 provides: Where the share capital of a company is divided into different classes of shares, a company shall not take any action which varies the rights attached to a class of shares unless that variation is approved by a special resolution.


Where the variation of rights attached to a class of shares is approved and the company becomes entitled to take the action concerned, the holder of a share of that class, who did not consent to or cast any votes in favor of the resolution for the variation, may apply to the Court for an order against acts that are prejudicial to a shareholder, or may require the company to purchase those shares.

“When the share capital of a company is distributed in different categories of Shares, the company cannot take any Share that modifies the rights bound to a category of Shares, unless this modification is approved by special resolution.

Note wording of article 146, Where the Board of directors agrees to the purchase of the shares by the company, it shall, within seven (7) days of issuing the notice:


  • state a fair and reasonable price for the shares to be acquired;
  • give written notice of the price to the shareholder.


It is important to note that article 156 talks about rights of shareholders to the dividends in these terms:  ” The shareholders, who are entitled to receive dividends, exercise pre-emptive rights to acquire shares or any other right or receive any other benefit under this Law or the article of association, shall be required to attend a meeting on the date fixed by the Board of Directors”.

The shareholders of a company may, by unanimous resolution or by unanimous shareholder agreement, approve any payment, provision, benefit, assistance or any other distribution provided that there are reasonable grounds to believe that, after the distribution, the company is likely to satisfy its solvency test (art.209).

A company shall make available for inspection by a shareholder of the company or by a person authorized in writing by a shareholder any documents of the company, except those documents regarded as confidential for the company if they suspect any misdeeds by managers. This should be by written notice of intention to inspect the records served to the company (art. 270).



Liability of shareholders is addressed by articles 137 to 139.  Indeed, article 137 limits the liability of the shareholders, the article 138 talks about liability for call, whereas article 139 exempts shareholders from some liabilities in case of alteration of articles of association.

In fact, according to the article 137, a shareholder shall not be liable for an obligation of the company by reason only of being a shareholder. The liability of a shareholder shall be limited to:

  • any amount unpaid on a share held by the shareholder;
  • any liability to repay a distribution received by the shareholder to the extent that the distribution is recoverable;
  • any liability expressly provided for in the constitution of the company.

Regarding liabilities for call, article 138 states that Where a share renders its holder liable to calls, or otherwise imposes a liability on its holder, that liability shall attach to the holder of the share for the time being, and not to a prior holder of the share, whether or not the liability became enforceable before the share was registered in the name of the current holder.

In case a shareholder has not agreed in writing to be bound by the alteration Article 139, makes it clear that he shall not be bound by an alteration of the constitution of a company which:

  • requires the shareholder to acquire or hold more shares in the company than the number held on the date the alteration is made;
  • increases the liability of the shareholder in the company.
Relevant Rules of General assemblies of shareholders

The shareholders have the right and the duty to sit at the general assemblies (ordinary or extraordinary).

Annual general assembly

The general meeting of shareholders is annually convened by the Board of directors as per article 151 of the law which adds the following precisions: not more than once in each year; not later than 6 months after the balance sheet date of the company; and not later than fifteen (15) months after the previous annual meeting.

A company may not hold its first annual meeting in the calendar year of its incorporation but shall hold that meeting within eighteen (18) months of its incorporation. The company shall hold the meeting on the date on which it is called to be held.

The business to be transacted at an annual meeting shall deal with the consideration and approval of the financial statements, the receiving of any auditor’s report, the consideration of the annual report, the appointment of any directors, the appointment of any auditor and other issues as may be deemed necessary by the annual meeting (art. 152).

In the same vein article 153 adds, where the financial statements are not approved at the annual meeting, they shall be presented at a further special meeting called by the Board of Directors within ninety (90) days.            

Special meeting of shareholders

According to article 154, a special meeting of shareholders entitled to vote on an issue put before it where : 1° it is called by the Board of Directors or a person who is authorized by the constitution to call the meeting; 2° it shall be called by the Board of Directors on the written request of shareholders holding shares carrying together at least 50 per cent of the voting rights

Proceedings at the meeting

The provisions specified in an order of the Registrar General shall govern the proceedings at meetings of shareholders of a company except to the extent that the constitution of the company provides otherwise (art. 155).



An invitation to subscribers is evidenced by a prospectus signed by all the promoters. A prospectus may be defined as a document published by a corporation or by persons acting as its agents or setting forth the nature and objects of an issue of shares, debentures, or other securities created by the company, the investment or risk characteristics of the security and inviting the public to subscribe to the issue. The prospectus must contain:

  • The draft memorandum of association and reference to the fact that it has been published in the OG,
  • The place and date of the constituent ordinary meeting;
  • The subscription rate (prices) for shares;
  • The date marking the beginning and end of issuance of shares; and
  • The subscription office       



A company may by ordinary resolution:

1 divide or subdivide its shares into shares of a smaller amount if the proportion between the amount paid, and the amount, if any, unpaid on each reduced share remains the same as it was in the case of the share from which the reduced share is derived;  2 consolidate into shares of a larger amount than its existing shares.

Where shares are consolidated, the amount paid and any unpaid liability thereon, any fixed sum by way of dividend or repayment to which such shares are entitled, shall also be increased. Article 88

Where a company has altered its share capital, it shall within fifteen (15) days of the date of the alteration file a notice to that effect with the Registrar General

Notwithstanding the provisions of the articles of association, where a company issues shares which rank equally with, or in priority to existing shares as to voting or distribution rights, those shares shall be offered to the holders of existing shares in a manner which would, maintain the relative voting and distribution rights of those shareholders. An offer shall remain open for acceptance for a period, which shall not be more than fifteen (15) days. Article 92

Since the amount of capital is mandatory fixed by the memorandum of association any increase or reduction of capital necessitates an amendment of the memorandum of association.

 Increase of Capital

The share capital of a company may be increased by issuing new shares, incorporation of reserves into the capital or by conversion of debentures into shares.

     Increase of capital by issuing new shares

If the increase in capital is by issuing new shares the shares may be paid for in cash or in kind. Note that a company may not be allowed to increase its share capital if the outstanding capital has not been entirely paid up.  The sanction for this restriction is the nullity of the increase. Nevertheless, this restriction does not apply if the increase results in the issuance of new shares in kind.

Shares shall carry a pre-emptive right of subscription of increases in capital. Accordingly, shareholders shall in proportion to their shares, have a pre-emptive right of subscription for shares issued for an increase in capital. This right is lost after the time limit allowed for the exercise of this right. Similarly, a shareholder may renounce the exercise of his pre-emptive right.

The formalities to be followed when issuing new shares is identical to that during the formation of the company: publication of prospectus, subscription and paying up of shares.

      Increase of capital by incorporating reserves

This increase is effected by the simple transfer of the reserve account to the capital account. All that is required is a decision of the special meeting. Two methods may be employed to give effect to this increase following a decision by special resolution at the special meeting:

  • By increasing the nominal (face) value of shares:
  • By issuing new shares and allocate them gratuitously to existing shareholders in proportion to the amount of their shares.


      Increase in Capital by Converting Debentures into Shares

As earlier stated, an increase in the capital of a company may be the result of the acceptance by the company creditors to transform their status from that of creditors to shareholders. If there is an agreement between the company and its shareholders, the agreement is given life by a decision of the extraordinary general meeting.

 Reduction of Capital

A reduction of capital is usually justified by losses. The registered capital of a company may be reduced by decreasing either the face value or the number of shares.

The decision to reduce the share capital is within the competence of the special meeting of shareholders and must be resolved by special resolution where there is a 75% majority.  This resolution may delegate all the powers to the BOD or managing director as the case may be, to effect the reduction.

The draft instrument of the reduction of capital shall be communicated to the auditor before the date of the special meeting, which shall authorize the reduction of capital.

The auditor is required to table before the special meeting a report in which he shall set out his assessment of the reasons for and condition of the reduction of capital.

Since a reduction of capital reduces the security (collateral) of the creditors the law empowers the creditors of the company to object to the reduction of the capital where it is not justified by losses.

The time limit for lodging an objection by creditors to the reduction of capital shall be 30 days from the date of depositing at the registry of the court of the minutes of proceedings, which ordered or authorized the reduction of capital.

Where the objection is admitted, the capital reduction procedure shall be suspended until the claims are reimbursed or guarantees are provided for creditors where the company offers such guarantees and where they are considered adequate.

Article 101 gives details conditions and these include the sub paragraph

A company shall not take any action:

  • to extinguish or reduce a liability in respect of an amount unpaid on a share;
  • to reduce its share capital for any purpose unless there are reasonable grounds on which the directors may determine that, immediately after the taking of such action, the company will be able to satisfy the solvency test.

A company may request buy back from the shareholders  its own shares where the Board of Directors is satisfied that:

  • the acquisition is in the best interests of the company;
  • the terms of the offer or agreement and the consideration to be paid for the shares are fair and reasonable to the company;
  • in case where the offer is not made to, or the agreement is not entered into with all shareholders, the offer or the agreement, is fair to those shareholders to whom the offer is not made, or with whom no agreement is entered into;
  • shareholders to whom the offer is made have available to them any information which is material to an assessment of the value of the shares;
  • the company shall immediately after the acquisition satisfy the solvency test. Article 105

Any offer by a company to purchase or otherwise acquire its own shares on a stock exchange shall be made in accordance with such conditions as prescribed above.

Before an offer is made by a Company to acquire its own shares, it shall send to all its shareholders a public notice requesting the repurchase of its own shares.

Purchased shares or those shares redeemed by the company shall, immediately upon purchase, be struck off the company’s register. Shares shall become the property of the company as of the date on which it has the power to use the rights linked with such shares. Article 107

A company may hold its own shares but no rights must be accorded to these shares

Share holders have a right of objection to the purchase of shares by the company not withstanding the resolution was a special rresolution and required a 75%majority who attended the special meeting.



A company shall not give financial assistance to acquire its own shares, except where the Board of Directors has previously resolved that:

  • giving the assistance is in the interests of the company;
  • the terms and conditions on which the assistance is given are fair and reasonable to the company and to any shareholders not receiving that assistance;
  • immediately after giving the assistance, the company shall satisfy the solvency test. Article 114

A company shall not provide financial assistance exceeding ten per cent (10%) of its share capital.


Dividends can only be paid out of profits.

Dividends to one class of shares can only differ between shareholders where there is an outstanding liability by the shareholder in respect of those shares – Article 102

The Board of Directors may issue shares to any shareholder who has agreed to accept the issue of shares, in lieu of a proposed dividend provided that:

  • the right to receive shares, in lieu of the proposed dividend or proposed future dividends has been offered to all shareholders of the same class on the same terms;
  • all shareholders elected to receive the shares in lieu of the proposed dividend, their relative voting or distribution rights, or both, would be maintained;
  • the shareholders to whom the right is offered are afforded a reasonable opportunity of accepting it.
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