18 & 19 - Returning value to shareholders Flashcards
What is the doctrine of maintenance of share capital?
a shareholder’s investment must remain in the company. any financial return to SH s must be made out of PROFITS, NOT CAPITAL
What is the purpose of the doctrine of maintenance of share capital?
provides a fund for last resort for creditors. also gives comfort to parties dealing with the company
In what 2 ways can a company pay dividends?
- Interim dividend - paid during the accounting period. does not require SH approval.
- Final dividend - declared after year end. requires OR.
Can a company acquire its own share?
No - general prohibition (s.658) - exceptions:
- Redemption of redeemable shares
- own share purchase
How does a company finance the redemption of shares?
- distributable profits
- proceeds of a fresh issue of shares
- existing capital (only private company)
How does a company finance the buy back of shares?
- distributable profits
- proceeds of a fresh issue of shares
- existing capital (only private company, only if insufficient profits)
- de minimis capital purchase with cash
- only private company,
- articles must expressly authorise use of s.692(1ZA) procedure
Redemption of shares: when is an OR or SR necessary?
SR needed if financing redemption from existing capital
No OR needed
Buyback of shares: when is an OR or SR necessary?
SR needed if financing buyback from existing capital
OR needed to approve terms of contract. (unless articles require SR).
Contract needed to set out terms of sale for off-market purchase.
Can the SH selling sharers vote in a GM?
Yes, provided that their vote does not carry the resolution - s.695(3)
What are treasury shares?
Shares purchased out of distributable profits ONLY that are held in ‘treasury’ instead of being cancelled
