Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SQE 1 > 6 - BL - Shares > Flashcards

6 - BL - Shares Flashcards

1
Q

Do shares in a company have to have a fixed nominal value?

A

Yes - s542(1) CA 2006

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are subscriber shares?

A

Shares purchased by the first members of a company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

When are shares ‘Allotted’?

A

Shares are allotted when a person acquires an unconditional right to be included on the company’s register of members in respect of those shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are Treasury Shares

A

Shares bought back by the comapny itself

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What rights are attached to ‘Ordinary Shares’

A
  • a right to vote at general meetings
  • a right of dividend
  • a right to surplus on winding up

“shares other than shares that as respects dividends and capital carry a right to participate only up to a specified amount in a distribution”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are Preference shares

A

Shares that have a preference when paying a dividend or a return of capital. Normally a set percentage of the share value

Normally cumulative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are Participating Preference Shares?

A

May participate in surplus profits and/or surplus assets in the company on winding up.

NOTE: does not relate to voting rights

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How can a company vary its existing class rights?

A
  • 75% of the members in that class agree in writing
    OR
  • special resolution passed at a separate general meeting of holders of that class.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What can members of a class do if they object to the variation?

A

-Shareholder holding 15% of the relevant shares may
- apply to the court
- within 21 days
-of the resolution to have a variation cancelled.

Following the application, the variation will not take effect unless and until it is confirmed by the court.
The court will not approve the variation if it feels that it unfairly prejudices the shareholders of the class in question.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a ‘Final dividend’?

A

Approved by an ordinary resolution following the financial year end.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is an ‘Interim Dividend’

A

The directors may pay an interim dividend if the company has sufficient distributable profits. The can be paid without an ordinary resolution.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the difference between an allotment, transmission and transfer of shares?

A
  • Allotment is where the company issues new shares in return for the subscription.
  • Transmission is an automatic process in the event of death or bankruptcy.
  • Transfer is the transfer of existing shares.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What should be included in a prospectus?

A

all information necessary to enable investors to make an informed assessment of the
- financial status of the company and
- the rights attaching to the shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When can directors refuse to register.

A
  • must give reason unless
  • they believe the transfer to be fraudulent.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Are there pre-emption rights on transfers in the standard MA’s

A

No.

Note this is a transfer not an allotment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is required for a share transfer?

A
  • stock transfer form signed by transferor and
  • share certificate
  • given to the new shareholder.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

When does beneficial & legal ownership pass to the new shareholder?

A
  • Beneficial title passes on the execution of the stock transfer form.
  • Legal title passes on the registration of the member as the owner of those shares in the register of members of the company. A new share cert will be issued within 2 months
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How does stamp duty work?

A

Stock transfer form must be stamped before the new owner can be registered as the holder of those shares.

If over £1,000 a 0.5% fee is charged.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Which companies will have an authorised share capital by default?

A
  • Companies formed before 1 October 2009 i.e. under CA 1985.

Authorised share capital acted as a ceiling on the number of shares a company could issue. The cap must be removed if the company wishes to issue further shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the process for allotting new shares?

A
  • 1) Remove Cap (if applicable)
  • 2) Give Dir permission to Allot
  • 3) Remove Pre-emption Rights
  • 4) Create new share class (if needed)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Remove Cap
How can you remove an authorised share capital cap?

A

CA 1985 - amend company articles by ORDINARY RESOLUTION

CA 2006 - amend company articles by SPECIAL RESOLUTION (company must have added a cap to its articles)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Give Dir permission to Allot
What do the directors need to do to allot?

A

requires a board resolution:

Private companies with only one class of shares:
- CA 2006 - s.550 CA 2006 directors have automatic power to allot for (doesn’t include making a new class).
- CA 1985 - directors need an ordinary resolution to rely on s.550 CA 2006 above.

For all others:
- an ordinary resolution is required to allow the directors to allot

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Remove Pre-emption Rights
What does first refusal mean when considering an allotment of new EQUITY SECURITIES?

A
  • ‘right of first refusal should be offered to the current shareholders on a pro-rat basis.
  • s.561 CA 2006 contains pre-emption rights. Removal of pre-emption rights requires a SPECIAL RESOLUTION.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Remove Pre-emption Rights
What are ‘equity securities’?

A

Shares other than shares that as respects dividends AND capital carry a right to participate only up to a specified amount.

(Any shares other than fixed preference shares)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Remove Pre-emption Rights
What is the GENERAL disapplication of pre-emption rights

A

passing a SPECIAL resolution to disapply its articles.

26
Q

Create new share class
How does the company issue a new class of shares?

A

Company will need to insert new provisions in its articles by SPECIAL resolution

27
Q

What is the process for allotting shares for a CA’85 private company with one class of shares?

A
  • OR to remove share cap
  • OR under s.551 to rely on s.550 (giving the dir right to allot)
  • SR to remove pre-emption rights
  • NO NEED TO CREATE NEW SHARE CLASS

ADMIN
- Return of allotment and statement of capital to Coy house (1 month)
- Update persons with significant control
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months

28
Q

What is the process for allotting shares for a CA’85 private company with a different class of equity shares?

A
  • OR to remove share cap
  • OR under s.551 to rely on s.550 (giving the dir right to allot)
  • SR to remove equity share pre-emption rights
  • SR to amend articles to create new share class

ADMIN
- Return of allotment and statement of capital to Coy house (1 month)
- Update persons with significant control
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months

29
Q

What is the process for allotting shares for a CA’85 private company with a different class of non-participating preference shares with fixed dividend and capital rights?

A
  • OR to remove share cap
  • OR under s.551 to rely on s.550 (giving the dir right to allot)
  • NO NEED TO REMOVE EQUITY SHARE PRE-EMPTION RIGHTS
  • SR to amend articles to create new share class

ADMIN
- Return of allotment and statement of capital to Coy house (1 month)
- Update persons with significant control
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months

30
Q

What is the process for allotting shares for a CA’06 private company with one class of shares?

A
  • NO CAP TO REMOVE
  • DIRECTORS HAVE AN AUTOMATIC RIGHT TO ALLOT
  • SR to remove pre-emption rights
  • NO NEED TO CREATE NEW SHARE CLASS

ADMIN
- Return of allotment and statement of capital to Coy house (1 month)
- Update persons with significant control
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months

31
Q

What is the process for allotting shares for a CA’06 private company with a different class of equity shares?

A
  • NO CAP TO REMOVE
  • OR under s.551 to rely on s.550 (giving the dir right to allot diff share class)
  • SR to remove pre-emption rights
  • SR to amend articles to create new share class

ADMIN
- Return of allotment and statement of capital to Coy house (1 month)
- Update persons with significant control
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months

32
Q

What is the process for allotting shares for a CA’06 private company with a different class of non-participating preference shares with fixed dividend and capital rights?

A
  • NO CAP TO REMOVE
  • OR under s.551 to rely on s.550 (giving the dir right to allot diff share class)
  • NO NEED TO REMOVE EQUITY SHARE PRE-EMPTION RIGHTS
  • SR to amend articles to create new share class

ADMIN
- Return of allotment and statement of capital to Coy house (1 month)
- Update persons with significant control
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months

33
Q

A board meeting is required to allot new shares. When will a general meeting beforehand NOT be required?

A
  • has no limit in its constitution on the number of shares that can be issued

AND

-does not require directors authorisation because the company is private with only one class of shares issuing the same sort of share and there is no restriction in the ART or has already given Dir authority to allot the shares,

AND

-is issuing shares to existing shareholders under s562 (method for pre-emption), or has already disapplied s561 (pre-emption rights).

AND

has the relevant class rights in its articles

34
Q

Finance assistance: who does the prohibition on giving financial assistance to the potential buyer of its shares apply to if the target is a PUBLIC company?

A
  • The target company

AND

  • Any subsidiary of the target company, whether public or private
35
Q

Finance assistance: who does the prohibition on giving financial assistance to the potential buyer of its shares apply to if the target is a PRIVATE company?

A

Any public company subsidiary of the target company NOT the targeted private company itself.

36
Q

Finance assistance: What does giving financial assistance include?

A
  • Gifts
  • Guarantee, security or indemnity, release or waiver
  • Loans or similar
  • Any other financial assistance where the net assets of the company are reduced to a material extent by the giving of financial assistance.
37
Q

Financial assistance: does it matter when the financial assistance is given?

A

No, can before, at the same time, or after the acquisition.

38
Q

Financial assistance: Does it matter whether the assistance is direct or indirect?

A

No

39
Q

Financial assistance: What are the conditional exceptions

A

Private company:
- Money lending in the ordinary course of business, 🏦
- Assistance in respect of employee share schemes. 🧑‍💻👨‍💼🧑‍💼

Public company:
- Money lending in the ordinary course of business,🏦
- Assistance in respect of employee share schemes.🧑‍💻👨‍💼🧑‍💼
AND
- Net assets are not reduced unless provided for out of distributable profits.📉

40
Q

Financial Assistance: What are the consequences of carrying out prohibited financial assistance for the company/directors?

A
  • Company = fine
  • Directors = Fine / imprisonment.

Also the transaction and share acquisition will be void,

41
Q

Buyback: What two methods allow a company to buy back its shares?

A
  • Follow the procedure set out in CA 2006
  • Following a court order for unfair prejudice
42
Q

Buyback: What funds can a PUBLIC company use to buyback its own shares?

A
  • Distributable profits;
  • Proceeds of a fresh issue of shares made for the purpose of financing the buyback; or
43
Q

Buyback: What funds can a PRIVATE company use to buyback its own shares?

A
  • Distributable profits;
  • Proceeds of a fresh issue of shares made for the purpose of financing the buyback; or
  • Capital (PRIVATE companies only & must use money from profits or a fresh issue first)
44
Q

Buyback distributable:
Public/Private companies: What conditions are there on a buyback out of distributable profits/fresh issue of shares?

A
  • Purchase of own shares is not restricted in company’s articles, 📝
  • The shares purchased are fully paid up 💰
  • Following the purchase, the comapny must continue to have ordinary shares 🎟️
45
Q

Buyback distributable:
Public/Private companies: What is the procedure for a buyback out of distributable profits/fresh issue of shares?

A
  • A contract is required.
  • The terms of the contract need to be approved by ORDINARY resolution.

GM:
- available for inspection for 14 clear days before the GM and also at the GM.

WR:
- If a written resolution is used, a copy of the contract must be sent with a copy of the written resolution.

46
Q

Buyback distributable:
Public/Private companies: What happens after the buyback out of distributable reserves or profits?

A
  • File a return, notice of cancellation & statement of capital within 28 days.
  • Keep a copy of the contract for 10 years
  • Cancel shares, update register of members
47
Q

Buyback Capital: Which companies can buy their own shares using capital?

A

Private companies only

48
Q

Buyback Capital:
What conditions are there on a buyback out of capital?

A

In addition to the conditions for a buyback out of profits/new issue:

  • The purchase is not restricted in the articles, 📝
  • Account prepared no more than 3 months before the director’s statement. 📊
  • Check no distributable reserves (if so use first) 🏦
  • A director’s statement of solvency must be prepared together with an auditors’ report, 🎩🤓
  • A SPECIAL resolution must be passed within a week of the directors’ signing the written statement of solvency. 💫
49
Q

Buyback Capital: What is the process for a buyback out of capital by board meeting?

A
  • accounts in last 3 months 📊
  • 14 days notice of contract (unless WR) 🪧
  • Directors statement of Solvency & Auditors report made available no more than 7 days before BM 🎩🤓
  • SH approve contract with Ordinary Resolution ⭐️
  • SH approve payment out of capital by Special Resolution 💫
  • Notifications within 7 days of SR - (Gazette, Newspaper/Notice to creditors & Coy house) 📰🏦⛪️
  • SR filed at coy house within 15 days
    💫⛪️
  • Payment of capital 5 - 7 weeks after SR 💰
  • Return sent to Coy House w/in 28 days of purchase of shares 📝⛪️
50
Q

Buyback Capital: What is the process for a buyback out of capital by written resolution?

A
  • accounts in last 3 months
  • Directors statement of Solvency/Auditors report/ Contract sent out with resolution
  • SH approve contract with Ordinary Resolution
  • SH approve payment out of capital by Special Resolution
  • Notifications within 7 days of SR - (Gazette, Newspaper/Notice to creditors & Coy house)
  • SR filed at coy house within 15 days
  • Payment of capital 5 - 7 weeks after SR
  • Return, notice of cancellation and statement of capital sent to Coy House w/in 28 days of purchase of shares
51
Q

What if a creditor objects to the buy back out of capital?

A

They can apply to the court for cancellation of the resolution.

52
Q

Buyback Capital: What does a director’s statement of solvency confirm for a buyback out of capital?

A
  • The company is solvent and will be for 12 months after the buyback.
53
Q

Buyback Capital: What are the consequences for wrongly signing a director’s statement of solvency confirm for a buyback out of capital?

A

If the company becomes insolvent within 12 months, the directors may:
- be required to contribute to the company and face
- criminal consequences if they had no reasonable grounds for making the statement of solvency.

54
Q

Buyback Capital: What does the auditors’ report state for a buyback out of capital?

A
  • The auditors are not aware of anything to indicate that the director’s opinion is not reasonable.

Note: a copy of the auditors’ report and directors’ statement must be made available to members.

55
Q

Buyback Capital: What are the notification requirements after passing the special resolution to make a payment out of capital?

A

from date of SR:
- 7 days place notices in gazette and file Directors Solvency Statement & Auditors report at Companies House
- 15 days - file SR at Companies House

56
Q

Buyback Capital: What are the notification requirements after passing the special resolution to make a payment out of capital?

A
  • Publish a notice in the Gazette
    AND
  • Publish a notice in the same form as the Gazette in a national newspaper OR give notice to each creditor.
    AND
  • Filing copies of the director’s statement and auditors’ report at Companies House.
57
Q

Buyback Capital: What are the requirements of a notice published in the Gazzette?

A

a) company has approved its POS
b) where directors’ statement and auditors’ report are available for inspection; and
c) that any creditor of the comapny, may, at any time within 5 weeks immediately following the date of the resolution, apply to court under s.721 CA 2006 for an order preventing payment.

58
Q

Buyback Capital: When can a purchase out of capital occur after the special resolution?

A

No earlier than 5 weeks and no later than 7 weeks after the date of the special resolution.

59
Q

Buyback Capital: What needs to happen after the buyback of shares out of capital and when?

A

Within 28 days of the date on which the shares that are bought back are delivered to the comapny, the company must send to companies house:
- A notice of cancellation
- A statement of capital
Then:
- Cancel Shares and update Register
- Keep contract for 10 years

60
Q
A
61
Q
A

SQE 1 (149 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions