4. Equity Finance

Question 1

What happens when shares are allotted?

Answer 1

Company creates new shares in exchange for consideration to new shareholder and share holding ratio changes

Question 2

Formalities to allot shares?

Answer 2

Share certification + enter onto register of members

Question 3

Buyback shares?

Answer 3

Shares in question are cancelled and bought back by the company from a disgruntled shareholder

Question 4

How are shares transferred?

Answer 4

1. Does company articles/shareholder agreement restrict transfer?
2. Stock transfer form+ share certificate by transferor
3. Company complete new certificate (within 2 months)
4. Stamp duty if over £1,000
5. Update Register of Members
6. Issue new share certificate within 2 months

Question 5

When do pre-emption rights apply?

Answer 5

a. Ordinary shares issued

b. wholly for cash

Question 6

Allotment of Shares process

Answer 6

1. Check company articles for restrictions

Before 1 Oct - remove ASC clause by OR

After 1 Oct - amend articles by SR

2. Director’s authority

Amend articles by SR if needed

a. Same class of shares

Under CA 2006 - BR
Pre CA 2006 - OR to give authority

b. different class - OR needed

3. Pre- emption rights - SR

“wholly for chas”

4. Update Register of Members, PSC + issue share certificate to C.H

Question 7

Buyback of shares - capital

Answer 7

1. company articles allow buyback + fully paid shares
2. Use distributable profits first
3. Before 1st BM
   - Draft contract
4. In BM - ‘reasonable notice’
   - Approve contract
   - Directors make solvency statement
   - Auditors Report
   - call GM/WR
5. In GM
   - OR approve buyback
   - SR (in 7 days of SoS) out of capital
   - SoS + contract available 15 days before GM
6. Hold GM/WR + contract + resolution

• Pass special resolution in General Meeting within 7 days of solvency statement

5. Public notice in Gazette of buyback - creditors have 5 weeks to object
6. File
   - SH03 + SH06 Form ( buyback and cancellation
   - SR passed
   - Auditor report
   - solvency statement
7. Complete buyback - shares cancelled
8. Update Register of Members + share capital + minutes for 10 years + contract

Question 8

What is company capital used for?

Answer 8

• buyback of shares
• unfairly prejudiced minority shareholder
• pay capital back to SH once debts and creditors paid