6. Equity Finance

Question 1

What is the minimum number of shareholders a company must have on incorporation?

Answer 1

1

Question 2

When issuing new shares, what 2 questions must be asked?

Answer 2

(1) Do the Directors’ have authority to issue new shares?
(2) Do pre-emption rights apply?

Question 3

(1) What 2 conditions must be met for Directors to NOT need the authority of the shareholders to issue new shares

(2) What will the Directors need to pass?

Answer 3

(1)
(a) Company has 1 CLASS OF SHARE (e.g. only ‘Ordinary shares’)
(b) NOT restricted by Articles (e.g. use Model Articles)

(2) Board Resolution (BR)

Question 4

If the Articles limit the Directors’ ability to issue new shares, what will need to be done to issue the new shares?

Answer 4

Amend Articles by Special Resolution

Question 5

What are ‘pre-emption’ rights?

Answer 5

Rights of first refusal for existing shareholders of a company

Question 6

For ordinary shares subject to ‘pre-emption’ rights,
(1) In what proportion must the shares be offered to existing shareholders?
(2) On what terms?

Answer 6

(1) Proportionate to existing shareholding
(2) At least as favourable as current terms

Question 7

(1) What is the general rule on whether ‘pre-emption’ rights for the issue of new shares will apply?
(2) What are 2 ways a company can vary the rule on statutory pre-emption rights?

Answer 7

(a) Statutory right of pre-emption will apply

(b)
(1) Articles on incorporation
(2) Amended by Special Resolution (SR) of Articles

Question 8

After issuing new shares, what 5 Post-Meeting tasks must be done?
(1) Send to CH (x3)
(2) Internal (x2)

Answer 8

Send to CH:
(1) Form SH01 (Return of Allotment Form’
(2) Copy SR (within 15 days passed)
(3) PSC Form (if shareholder > 25% voting rights)

Internal:
(4) Issue ‘Share Certificates’ (within 2 months)
(5) Update ‘Register of Members’

Question 9

If a Special Resolution (SR) is needed to amend the Articles and issue new shares:
(1) Where must a copy of the resolution be sent?
(2) In what time frame?

Answer 9

(1) Companies House
(2) Within 15 days of resolution being passed

Question 10

After issuing new shares:
(1) What internal step must the company take?
(2) What must be issued to shareholders and in what time frame?

Answer 10

(1) Update the ‘Register of Members’
(2) New ‘share certificates’ issued within 2 months

Question 11

To transfer shares, what are the 6 steps that must be taken?

Answer 11

(1) Transferor sends to transferee - SIGNED ‘Stock Transfer Form’ + Share certificate(s)
(2) Transferee pays pays stamp duty
(3) Transferor sends to Company - STAMPED Stock Transfer Form’ + Share certificate(s)
(4) Directors choose to accept or / reject - IF Accept pass Board Resolution (BR)
(5) Company (company secretary) enters transferee name on the ‘Register of Members’
(6) New share certificates issued within 2 months

Question 12

What are the two types of ‘share buyback’?

Answer 12

(1) Buyback from profits
(2) Buyback from capital

Question 13

What is the only circumstance that a ‘buyback from capital’ can be used?

Answer 13

NO distributional profits available (i.e. must use buyback from capital first)

Question 14

When undertaking a ‘buyback from profits’, the share buyback ‘contract’ must be approved by whom and by what resolution?

Answer 14

Shareholders by Ordinary Resolution (OR)

Question 15

To approve a share ‘buyback from profits’, an OR must be approved. What are the 2 methods this can be done?

Answer 15

(1) General Meeting
(2) Written Procedure

Question 16

In advance of a General Meeting (GM) to vote on a share ‘buyback from profits’:
(1) What must be made available to shareholders?
(2) When should this be made available?

Answer 16

(1) Copy of contact (of share buyback) OR summary of it
(2) At least 15 days before GM

Question 17

Outline the stages of a share ‘buyback’ from PROFIT

(1) BEFORE GM (x4)
(2) At GM (x1)
(3) POST-GM (x4)

Answer 17

BEFORE GM:
(1) Check SHARES FULLY PAID UP
(2) Check ARTICLES
(3) Produce ‘ACCOUNTS’ (check ‘distributable profits’ available)
(4) Make CONTRACT available min 15 days pre GM & at GM

AT GM - OR passed (approve CONTRACT)

POST-GM
(1) File FORMS SH03 &SH06 (within 28 days)
(2) CANCEL SHARES
(3) Update REGISTER OF MEMBERS (+ ‘Register of PSC’ if relevant)
(4) Keep CONTRACT for 10 YEARS at Registered Office

Question 18

Outline the stages of a share ‘buyback’ from CAPITAL

(1) BEFORE GM (x5)
(2) At GM (x2)
(3) POST-GM (x7)

Answer 18

BEFORE GM:
(1) Check SHARES FULLY PAID UP
(2) Check ARTICLES
(3) Produce ‘ACCOUNTS’ (check ‘distributable profits’ NOT available)
(4) Directors make STATEMENT OF SOLVENCY
(5) Make CONTRACT available min 15 days pre GM & at GM

AT GM -
(1) OR passed (approve CONTRACT)
(2) SR passed (approve Buyback)

POST-GM
(1) ‘NOTICE’ in LONDON GAZETTE
(2) NOTICE in NATIONAL PAPER OR Notify INDIVIDUAL CREDITORS
(3) File FORMS SH03 &SH06 (within 28 days)
(4) CANCEL SHARES
(5) Update REGISTER OF MEMBERS (+ ‘Register of PSC’ if relevant)
(6) Keep CONTRACT for 10 YEARS at Registered Office
(7) File SR (at CH within 15 days)

Question 19

What are the 7 main stages of a share ‘buyback from capital’?

Answer 19

(1) Produce Accounts
(2) Produce ‘Statement of Solvency (by Directors) + Auditors’ Report
(3) Copy contact, SOS, Auditors’ Report available to shareholders - 15 days pre GM
(4) Approve buyback ‘contract’ by OR
(5) Approve buyback by SR
(6) Notice in London Gazette + National Newspaper OR Individual notice to each creditor
(7) Post filing requirements (see separate card)

Question 20

In a share ‘buyback from capital’, accounts must be produced?
(1) What is the purpose of this?
(2) When must this be done?

Answer 20

(1) Show there are NO distributional profits
(2) At least 3 months before ‘Statement of Solvency’

Question 21

What is the purpose of a:
(a Statement of Solvency
(b) Auditors Report

Answer 21

(a) Commitment company remain solvent for a year after the transaction
(b) Confirm the SOS is reasonable

Question 22

In a share ‘buyback from capital’, what 2 resolutions and what does each approve?

Answer 22

(1) OR - approve the (buyback) contract
(2) SR - approve the buyback itself

Question 23

(1) Who aside from the shareholders can oppose a share ‘buyback from capital?
(2) What can they do to prevent it?

Answer 23

(1) Creditors
(2) Apply for a prevention order

Question 24

Following a share ‘buyback from capital’ what 4 items may be sent to Companies House?

Answer 24

(1) Form SH03
(2) Form SH06
(3) Copy of the Special Resolution (NOT OR)
(4) PSC form (if needed)

Question 25

Following a a share ‘buyback from capital’, do both the Special Resolution and Ordinary Resolution need to be sent to Companies House?

Answer 25

NO - only SR

Question 26

Following a share ‘buyback from capital’ what 3 internal steps should a company take?

Answer 26

(1) Cancel shares
(2) Update Register of Members
(3) Update PSC register (if needed)

Question 27

What is the two stage process for approving the payment of a dividend:
(1) Stage 1 - Directors
(2) Stage 2 - Shareholders

Answer 27

(1) Directors recommends dividend + amount at BM
(2) Shareholders vote at GM by OR to approve it or an amount lower (NOT higher)

Question 28

Shareholders vote by Ordinary Resolution (OR) to approve a dividend amount recommended by the Directors. Can they approve an amount:
(1) Lower than recommended
(2) Higher than recommended

Answer 28

(1) Yes
(2) No