The power of a company to issue shares is restricted by the Companies Act of 2008 (“Companies Act”) and is based on both qualitative and quantitative criteria. The qualitative criteria provides that if shares or securities convertible into shares is issued or any options or rights exercisable for securities is granted to a director, future director or prescribed officer of the company or any person related or inter-related to such a person or any nominee of such a person, the action must be approved by a special resolution of the company.


The quantitative criteria provides that an issue of shares, securities convertible into shares, or rights exercisable for shares in a transaction, or a series of integrated transactions, requires approval of the shareholders by special resolution if the voting power of the class of shares that are issued or issuable as a result of the transaction or series of integrated transactions will be equal to or exceed 30% of the voting power of all the shares of that class held by shareholders immediately before the transaction or series of transactions.


In this regard a director of a company will be liable to the extent set out in section 77(3) of the Companies Act if the director was present at a meeting when the board approved the issue of any securities as contemplated above, or if the director participated in the making of such a decision. A director will furthermore be held liable if the director failed to vote against the issue of those securities despite knowing that the issue of those securities was inconsistent with the procedure outlined above.