11 - Shares and share capital Flashcards
The court confirmed that a share is what type of personal property for the shareholder?
‘Thing in action’ - intangible asset other than land
Loose definition for nominal value
Minimum value a share can be allotted for & how much a shareholder is required to contribute upon liquidation
Difference between allotted share capital and issued share capital
Shares may be allotted but unissued if the person’s name is not yet on the RoM
* An allottee has an unconditional right to be included in the RoM, but this may not be actually done immediately
What must authority to allot state (2)
- Maximum amount of shares to be allotted
- Date of expiry, being not more than 5 years
How long to deliver SH01?
30 days
Minimum share capital of public co’s
£50k, paid up at 25%
What must a public company obtain before conducting business?
A trading certificate (with form SH50)
S. 561(1)
Pre-emption on allotment of equity securities (ordinary shares)
Where in CA 2006 -Pre-emption on allotment of equity securities (ordinary shares)
S. 561(1)
7 instances of where pre-emption does not apply
- Bonus shares
- Non-cash consideration
- Share schemes
- Excluded by articles
- Articles contain corresponding right which has been complied with
- Directors empowered to ignore pre-emption rights as per articles or special resolution
- Directors have authority to allot without pre-emption applying
Two remedies for company is allottee fails to pay instalment or comply with call notice
- Company has a lien over the partly-paid shares, and can sell shares after 14 days
- Company can send allottee notice of intended forfeiture, and forfeit the shares after 14 days
Which model articles contain remedial rights for company on failing to pay instalment or complying with call notice?
PLC model articles
3 limits on non-cash consideration (not allowed) - only apply to PLCs
- Payment in work or services
- If not within the next 5 years
- If it has not been independently valued
Significance of commission being offered for payment of shares
Effectively means allottee gets shares at a discount from nominal value
2 necessary conditions for commission on payment of shares being allowed
- Authorised by the company’s articles
- Commission does not exceed 10% of price (or rate authorised by articles if lower)
Do share certificates provide conclusive evidence on shareholdings?
No, this is found in the RoM
Two functions of a share certificate
- Provides basic information about shares to which is relates
- Provides evidence (though not conclusive) that the person holds the legal title to the shares
What constitutes a variation of share rights?
- Any amendment to or addition of a provision in the articles for the variation of a right
- Abrogation (repealing or abolishing) of a class right
According to courts, if share rights stay the same, but the right is rendered less valuable or even worthless, does the constitute a variation? - example
No
Reduction of nominal value of dividend preference shares (meaning less dividends will be granted)
Two ways to vary class rights
- Complying with provision in articles allowing this (not contained in model arts)
- Obtaining consent of holders of that class (three quarters meeting or resolution), and consent of members as a whole (three quarters meeting or resolution)
Threshold for shareholders objecting to variation of share rights
15% of issued shares of class
or
15% of class (if no share capital)
Three cases where transmission of shares applies
- Death of a shareholder
- Shareholder is bankrupt
- Shareholders becomes patient under Mental Health Act 1983
What is a transmission of shares?
Acquiring shares by operation of law
Key advantage and disadvantage of offering shares to the public
- Can raise significant amounts of money
- Subject to significant amount of regulation
Two key questions for companies when offering shares to the public
- What type of offer will the company make?
- Will the company trade its shares on a stock exchange?
What is an IPO?
Initial public offering - first time shares are offered to the public
4 methods by which companies can offer shares to the public
- Offering public a certain amount of shares
- Investment bank subscribing for shares, and subsequently offering them to public
- ‘Placing’ - investment bank places its shares with selected purchasers (usually institutional investors), rather than the public at large
- Rights issue made to existing shareholders
Two principal markets of the LSE
- Main Market
- AIM
Two key differences between Main Market and AIM
- Securities traded on AIM need not be listed, and are subject to less regulation
- Co’s with shares on AIM must comply with AIM Rules for Companies, rather than Rules of the LSE
How does company get its shares listed?
By applying to the FCA
Two types of listing available to companies
- Standard listing
- Premium listing
Two differences between companies with a standard and premium listing
Premium listing:
- Greater regulation
- UKCG Code applies
5 criteria which must be met to meet eligibility criteria for standard listing (further requirements for premium listing)
- Incorporated and operating in accordance with its constitution
- Shares listed must comply with law, co. constitution and have stat and other necessary consents
- Securities must be freely transferrable, fully paid and free from all liens and restrictions on right to transfer
- Expected aggregate of securities must be £30m in case of shares and £200k in case of debt securities
- FCA approved prospectus must be published
Two Listing Principles must comply with to maintain listing
- Take reasonable steps to establish and maintain adequate processes, systems and controls to enable compliance with obligations; and
- Deal with FCA in open and co-operative manner
What will companies with a premium listing also be required to comply with?
Six Premium Listing Principles
Why, in certain cases, are companies required to prepare and publish an approved prospectus prior to offering shares to public? (2)
- To provide information which allows for informed decisions and therefore protects investors
- Increases confidence in securities, contributing to the proper functioning and development of markets
When is a prospectus required?
When securities are offered to the public, with certain exceptions
What must be included in prospectus (3)
- Assets and liabilities, profits and losses, FP and prospects of issuer
- Rights attaching to the securities
- Reasons for issuance and impact on issuer
In which two formats can prospectus be provided?
Single document, or three separate documents
What are the three separate documents of a prospectus
- Registration document (info on company)
- Securities note (info on shares)
- Summary (aiding investors considering whether to invest)
What is underwriting?
Underwriter agrees to subscribe or purchase any shares that are not taken up by the public
What is the advantage of underwriting?
Company knows all shares being offered will be subscribed for or purchased
What is the downside of underwriting?
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