6 - BL - Shares* Flashcards
1
Q
Do shares in a company have to have a fixed nominal value?
A
Yes
Any allotment of a share that does not have a fixed nominal value is VOID
2
Q
Can a share be allotted/issued at a discount to its normal value?
A
NO
3
Q
Issued share capital vs authorised share capital
A
ISC: 2006 companies - need to change cap by SR
ASC: 1985 companies - need to change cap by OR
4
Q
What is a premium?
A
Excess over nominal value
5
Q
What are subscriber shares?
A
Shares purchased by the first members of a company
6
Q
When are shares ‘Allotted’?
A
When a person acquires an unconditional right to be included on the company’s register of members in respect of those shares
7
Q
What are Treasury Shares
A
Shares bought back by the company itself and held until a decision is made.
8
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
NB: unrestricted right to dividends & surplus capital on winding up
9
Q
What are Preference shares? Are they cumulative?
A
Shares that have a preference when paying a dividend or a return of capital - rank as higher priority to ordinary shareholders.
Normally a set percentage of the share value
Presumed to be cumulative unless stated otherwise
10
Q
What are deferred shares?
A
Carry no voting rights and no ordinary dividend but
SOMETIMES entitled to share of surplus profits after other dividends have been paid
11
Q
Redeemable shares
A
Issued with the intention that the company will, or may wish to, at some time in the future, buy them back and cancel them
12
Q
Convertible shares
A
Will usually carry an option to convert into a different class of share according to stipulated criteria.
13
Q
What are Participating Preference Shares?
A
May participate in surplus profits and/or surplus assets of the company on winding up.
NOTE: does not relate to voting rights???
14
Q
How can a company vary its existing class rights?
A
- according to company’s Articles
OR - 75%+ of the members in that class agree in writing
OR - special resolution passed at a separate general meeting of holders of that class.
15
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.
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.
16
Q
What is a ‘Final dividend’?
A
Approved by an ordinary resolution following the financial year end.
17
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.
NB: MA allow this.
18
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 (will vest in PRs or bankruptcy trustee).
- Transfer is the transfer of existing shares.
19
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.
NB: normally not required for private companies.
20
Q
What are financial promotions & are they allowed?
A
Any invitation or inducement (in the course of business) to engage in investment activity (including buying shares).
Prohibited for ALL companies UNLESS certain requirements met.
21
Q
When can directors refuse to register a share transfer?
A
- must give reason unless
- they believe the transfer to be fraudulent.
22
Q
Are there pre-emption rights on transfers in the standard MA’s
A
No (must be specifically inserted into Articles).
Note this is a transfer not an allotment
23
Q
What is required for a share transfer?
A
- stock transfer form signed by transferor and
- share certificate
- given to the new shareholder.
24
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
25
How does stamp duty work?
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 (rounded to nearest £5).
26
Which companies will have an authorised share capital by default?
- 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.
NB: post-2009 companies will need to amend articles to impose cap by SR.
27
What is the process for allotting new shares?
- 1) Remove Cap (if applicable)
- 2) Give Directors permission to Allot
- 3) Remove Pre-emption Rights
- 4) Create new share class (if needed)
- 5) Board Resolution (always needed)
28
Remove Cap
How can you remove a share capital cap?
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)
29
What is a confirmation statement?
Companies must file every year
Confirms that the company has filed all necessary returns within 12-month period & sets out any changes to share capital.
30
Give Dir permission to Allot
What do the directors need to do to allot?
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 (unless Articles require higher majority)
31
What are the limits that authority to allot under s 551 is subject to?
Time and number of shares.
Expiry date cannot be more than 5 years from date of authorisation.
32
Remove Pre-emption Rights
What does first refusal mean when considering an allotment of new EQUITY SECURITIES?
- 'right of first refusal should be offered to the current shareholders on a pro-rata basis (i.e. in proportion to their existing shareholding).
- s.561 CA 2006 contains pre-emption rights. Removal of pre-emption rights requires a SPECIAL RESOLUTION.
33
Remove Pre-emption Rights
What are 'equity securities'?
All shares except those that are capped as to dividends AND capital.
(Any shares other than fixed preference shares)
Equity securities MUST be offered to the existing shareholders of a company in proportion to their shareholding.
34
Remove Pre-emption Rights
What is the GENERAL disapplication of pre-emption rights
Where directors are generally authorised, can be done by SPECIAL resolution or disapplying its articles.
35
How can private companies with one class of share disapply the pre-emption rights
Special resolution - applies for as long as the company has in issue and allots shares of only one class.
36
Create new share class
How does the company issue a new class of shares?
Company will need to insert new provisions in its articles by SPECIAL resolution
Exception: with a CA 1985 company if removing a cap transferred from a company’s authorised share capital in its memorandum.
37
Can pre-emption rights by specifically disapplied?
Yes - by passing a SR, and directors providing written statement containing reasonings.
38
How else can pre-emption rights by disapplied?
- private companies can exclude permanently in Articles (no such provision in MA).
- private companies with one class of share can disapply in Articles.
39
What is the process for allotting shares for a CA'85 private company with one class of shares?
- 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 CH (1 month)
- Update PSCs if necessary (form to CH, but update register internally)
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months
40
What is the process for allotting shares for a CA'85 private company with a different class of equity shares?
- 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 (form to CH, but update register internally)
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months
41
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?
- 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 (form to CH, but update register internally)
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months
42
What is the process for allotting shares for a CA'06 private company with one class of shares?
- 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 (form to CH, but update register internally)
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months
43
What is the process for allotting shares for a CA'06 private company with a different class of equity shares?
- 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 (form to CH, but update register internally)
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months
44
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?
- 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 (form to CH, but update register internally)
- Update register of members within 2 months
- Share certs. sent to new shareholders within 2 months
45
When are copies of resolutions to be sent to CH by?
Within 15 days
46
A board meeting is required to allot new shares. When will a general meeting beforehand NOT be required?
- 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), OR is a private company and utilised s 567.
AND
has the relevant class rights in its articles
47
What is the doctrine of maintenance of capital
The idea that the share capital is a permanent fund for creditors.
48
To which transactions are the rules on financial assistance applicable?
1. Acquisition or sale of shares
2. Issue of shares
49
Finance assistance: whom does the prohibition on giving financial assistance to the potential buyer of its shares apply to if the target is a PUBLIC company?
- The target company
AND
- Any subsidiary of the target company, whether public or private
50
Finance assistance: whom does the prohibition on giving financial assistance to the potential buyer of its shares apply to if the target is a PRIVATE company?
Any public company subsidiary of the target company NOT the targeted private company itself.
51
Finance assistance: What does giving financial assistance include?
- 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.
NB: MUST actually constitute financial assistance being given for the PURPOSES of the acquisition.
52
Financial assistance: does it matter when the financial assistance is given?
No, can before, at the same time, or after the acquisition.
53
Financial assistance: Does it matter whether the assistance is direct or indirect?
No
54
What is the purpose exception to the prohibition on financial assistance?
NOT unlawful if the principal purpose in giving it is not for the purpose of the acquisition or if that purpose (the acquisition) is only an INCIDENTAL part of some larger purpose
55
Financial assistance: what are the unconditional exceptions
E.g. dividend payments
56
Financial assistance: What are the conditional exceptions
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.📉
57
Financial Assistance: What are the consequences of carrying out prohibited financial assistance for the company/directors?
- Company = fine
- Officers = Fine / imprisonment.
Also the transaction and potentially share acquisition will be void.
58
Where are dividends paid from?
Distributable profits NOT capital
59
Buyback: What two exceptional methods allow a company to buy back its shares?
- Follow the buyback procedure set out in CA 2006
- Following a court order for unfair prejudice
60
Diff. between off-market and market purchases of own shares
Market - done on recognised investment exchange
Off-market - not done as above, and will need a contract approved by OR.
61
Buyback: What funds can a PUBLIC company use to buyback its own shares?
- Distributable profits;
- Proceeds of a fresh issue of shares made for the purpose of financing the buyback; or
62
Buyback: What funds can a PRIVATE company use to buyback its own shares?
- 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)
63
Buyback distributable:
Public/Private companies: What 3 conditions are there on a buyback out of distributable profits/fresh issue of shares?
- Purchase of own shares is not restricted in company's articles, 📝
- The shares purchased are fully paid up 💰
- Following the purchase, the company must continue to have issued shares other than redeemable and treasury shares 🎟️
64
Buyback distributable:
Public/Private companies: What is the procedure for a buyback out of distributable profits/fresh issue of shares?
- A contract is required.
- The terms of the contract need to be approved by **ORDINARY resolution**.
GM:
- available for inspection for **15 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.
65
Buyback distributable:
Public/Private companies: What happens after the buyback out of distributable reserves or profits?
- 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 (& PSC register if applicable)
66
Buyback Capital: Which companies can buy their own shares using capital?
Private companies only
67
Buyback Capital:
What 5 additional conditions are there on a buyback out of capital?
In addition to the conditions for a buyback out of profits/new issue:
1. The purchase is not restricted in the articles, 📝
2. Account prepared no more than **3 months** before the director's statement. 📊
3. Check no distributable reserves (if so use first) 🏦
4. A director's statement of solvency must be prepared together with an auditors' report, 🎩🤓
5. A SPECIAL resolution must be passed within a **week** of the directors' signing the written statement of solvency. 💫
68
What is the directors' statement of solvency
Confirms that the company is solvent and able to pay its debts as they fall due and that it will remain solvent for a period of 12 months after the buyback
- could face criminal sanctions if no reasonable grounds to make statement
NB: must be made available to members (sent with WR for available inspection)
69
Buyback Capital: What is the process for a buyback out of capital by board meeting?
- 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 & CH) 📰🏦⛪️
- SR filed at coy house within **15 days**
💫⛪️
- Payment of capital **5 - 7 weeks** after SR 💰
- Return sent to CH w/in **28 days** of purchase of shares 📝⛪️
70
Buyback Capital: What is the process for a buyback out of capital by written resolution?
- 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
71
What if a creditor objects to the buy back out of capital?
They can apply to the court for cancellation of the resolution.
72
Buyback Capital: What does a director's statement of solvency confirm for a buyback out of capital?
- The company is solvent and will be for 12 months after the buyback.
73
Buyback Capital: What are the consequences for wrongly signing a director's statement of solvency confirm for a buyback out of capital?
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.
74
Buyback Capital: What does the auditors' report state for a buyback out of capital?
- 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.
75
Buyback Capital: What are the notification requirements after passing the special resolution to make a payment out of capital?
Within 7 days of SR:
- Place notices in gazette and file Directors Solvency Statement & Auditors report at Companies House
- 15 days - file SR at Companies House
76
Buyback Capital: What are the notification requirements after passing the special resolution to make a payment out of capital?
- 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.
77
Buyback Capital: What are the requirements of a notice published in the Gazzette?
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.
78
Buyback Capital: When can a purchase out of capital occur after the special resolution?
No earlier than 5 weeks and no later than 7 weeks after the date of the special resolution.
NB: cannot be reduced even if SR passed unanimously.
79
Buyback Capital: What needs to happen after the buyback of shares out of capital and when?
Within 28 days of the date on which the shares that are bought back are delivered to the company, 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
80
