Rights that come with owning shares
This is part five of the Bermuda Investment Primer Series.
Three interesting events have happened in the last several weeks. On the face of it, each event seems quite disconnected from the others. Oh, but they are ever connected.
The 45th President of the United States, Donald Trump, gave his first major address to Congress last week. Shortly, thereafter, the US capital markets exploded, relatively speaking as the Dow Jones Industrial Average crossed the 21,000 mark for the first time.
On March 1, Butterfield Bank announced that the Carlyle Group “no longer own any common shares in the bank, and an investment agreement between it and the bank has been terminated.”
At the end of last week, our hypothetical Bermuda family, MamaZina and her adult children signed company shareholder documents to convert their sole proprietorship into a Bermuda incorporated company, which is now MamaZinas Pizzeria, Ltd.
And there you have it. We have three connected announcements that are all about the ownership and performance of shares in companies.
The Dow is a stock market index that shows how 30 of the largest publicly-owned companies based in the US have traded (value/performance) during a standard stock market session. Originally calculated in 1896, the Dow has tracked an ever revolving number of the largest American Companies since then — only General Electric remains of the original 12 companies listed at the Dow’s inception. The other original companies were broken up, went bankrupt, were bought, absorbed by other companies, or removed — to be replaced with newer, more massively capitalised US companies. Think Apple, Coca-Cola, Pfizer, American Express, Nike, Walmart and the like.
While the Dow is compiled to gauge the performance of the industrial sector within the American economy, the index’s performance is influenced by not only corporate and economic reports, but also by domestic and foreign political events, and natural disasters. See Wikipedia for a good, easy-to-understand read about the Dow.
Established in 1858, and incorporated in 1904, the Bank of NT Butterfield & Son Limited is a publicly traded company registered and based in Bermuda. It is now listed on two capital market exchanges and has a market capitalisation of $1.7 billion and has more than 33 million shares outstanding.
Butterfield Bank is not a corporate mega-giant such as those listed on the Dow, but is now a well-positioned (after restructuring investment from Carlyle Group per the bank’s announcement) small, publicly traded finance company with global connections.
Butterfield shares are listed on the Bermuda Stock Exchange in Bermuda dollars, as well as on the New York Stock Exchange in US dollars.
And then we have MamaZina Pizzeria Ltd (MZEE) a very, very tiny privately held incorporated company operating in Bermuda only.
By now, we should feel familiar with where a stock comes from and what it is. Having said that, we now look at the ownership structure of MZEE to have a better understanding of why incorporation regulations and structures are so very important.
Ownership of shares (stock) in a company gives you, the owner, certain rights as stated in the company’s charter. Among them are
• voting rights on how the company is run
• rights to assets of the company, depending on ownership equity
• rights to dividends
• rights to check the company books and records and so on
Regulations under the Bermuda Local Companies Act 1981 also contain various stipulations regarding Bermudian share ownership (60/40 rule) that cannot benefit non-Bermudians — an issue we will explore further on in this narrative.
In the business start-up, MamaZina and her late spouse George provided the most capital, some $20,000. While the children provided smaller amounts, $5,000 from George, $7,000 from Desmond, and $1,000 from Juliana, who had no savings since redundancy a year ago. Juliana’s plight was one of the reasons Mama incorporated, while Desmond’s US spouse was another.
MZEE needs advice on the informal loans from the cousin ($20,000) a friend ($5,000), and structuring a provision to prevent ownership usurpation by other shareholders, either present or future.
Next, how many shares should each shareholder own? Can MZEE block transfer of shares to people she doesn’t like? Should she refinance the equity line? Can she sell more shares to outsiders? The company needs more operating cash, and capital for expansion.
Here, I would like to give a warning regarding one of the reference sources that is not safely accessible, that is the Bermuda Companies Register.
I tried to access this website several months ago, and was not able to do so due to the warnings regarding website security failings. As of Thursday, the site (see link at the end of this article) The server presented a certificate signed using a weak signature algorithm. This means the security credentials presented could have been forged, and the server may not be the server you expected (you may be communicating with an attacker).
Am I missing something here? Why has this not been fixed. This is our face to the world. This is simply not acceptable given our propensity to tout our sophisticated international finance centre.
Would someone in government information technology please get this fixed as soon as possible.
Readers, if I am wrong about this and have missed a change in website structure (but I don’t think so, since the same website is listed on our Bermuda Government website), please accept my apology in advance.
• Carlyle Group exits Butterfield Bank: http://www.royalgazette.com/business/article/20170301/carlyle-group-exits-from-butterfield-bank
• MamaZina and local companies act: http://www.bma.bm/company-matters/SitePages/Local-Companies.aspx
• Dow Jones Industrial Average explained on Wikipedia: https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
• Butterfield Bank entry on Wikipedia: https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
• Butterfield Bank, Nasdaq summary: http://www.nasdaq.com/symbol/ntb/ownership-summary
• The Bermuda Companies Register (Note: this site has warning message regarding its security certificate) https://www.roc.gov.bm/roc/rocweb.nsf/ReviewPublicRegA-Z
Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Pondstraddler Life, financial perspectives for Bermuda islanders with multinational families and international connections on the Great Atlantic Pond. Contact: firstname.lastname@example.org
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