7.9 Share Funding

Question 1

What are the two main ways that Companies raise share capital?

Answer 1

Debt finance
Equity finance

Question 2

What is debt finance?

Answer 2

Where a company borrows money to raise capital

Question 3

What is equity finance?

Answer 3

Company issues shares in return for cash

Question 4

If a company was incorporated prior to 1 October 2009, what would it have in terms of shares?

Answer 4

A limit on the number of shares it could allot in its memorandum of association

Question 5

For companies incorporated on or after 1 October 2009, there is what in terms of shares?

Answer 5

No limit on the number of
shares the company is permitted to allot unless its articles expressly state otherwise by
specifying an upper limit.

Question 6

A private company with unamended/ Model Articles has what?

Answer 6

No restriction on the number of shares it can allot

Question 7

What is capital maintenance?

Answer 7

The initial investment of the company which creates the nominal value of shares. This must be maintained by the shareholders to ensure there is a fund for the company’s creditors if the company becomes insolvent

Question 8

What is the nominal value?

Answer 8

Value of the share set out in the statement of capital at incorporation

Question 9

What is the purchase price?

Answer 9

Total that the shares are bought for. Generally is at a higher price than their nominal value

Question 10

The difference between the nominal value and purchase price is called the

Answer 10

Share premium

Question 11

When a company is incorporated, what form sets out the type of shares it has

Answer 11

Form IN01

Question 12

If directors want to allot different classes of shares with different rights, what must the directors seek

Answer 12

shareholder approval via an ordinary resolution

Question 13

What rights do ordinary shares in a private limited company that has Model Articles do?

Answer 13

Allow shareholders to vote at general meetings, participate in distributable profits by a right to receive a dividend if one is lawfully declared and to participate
in any capital i.e. monies realised from the surplus assets of the company on a winding up.
These are the rights that attach to ordinary shares that a private limited company will have if it has Model Articles

Question 14

What does it mean to say shares are allotted?

Answer 14

A person acquires the right to have the shares etc be included in the company’s register of members

Question 15

What does it mean to say the shares are issued?

Answer 15

When the allotment has been registered the company’s register of members

Question 16

Private company with only one class of shares - can directors allot shares?

Answer 16

Depends on the company’s incorporation date:

• On or after 1 October 2009: under s 550 a director can allot shares without obtaining
  shareholder permission to do so, unless the company’s articles prohibit it.
• Before 1 October 2009: the directors will need shareholder authority to allot by way of an
  ordinary resolution, and thereafter may rely on the s 550 authority

Question 17

Directors of private companies with more than one class of shares and public companies will
need - to allot shares:

Answer 17

shareholder permission

Question 18

What are pre-emption rights?

Answer 18

Pre-emption rights ensure existing shareholders are given the first right to purchase new equity
securities: Companies Act ss 560–577.

Question 19

Equity securities are defined as

Answer 19

Ordinary shares

Question 20

Statutory pre-emption rights apply unless:

Answer 20

• the shares are being bought for non-cash consideration (s 565)
• they have been excluded (Companies Act s 567 (private limited companies only) or s 568)
  or disapplied (Companies Act ss 569–571), or
• all the shareholders entitled to be offered shares have signed a waiver renouncing their
  claim to them.

Question 21

Exclusion of f pre-emption rights: how can this be achieved?

Answer 21

in the company’s articles

Question 22

Company’s cannot sell shares at:

Answer 22

A lower price than their nominal value. Criminal offence
problems arise when shares are issued for assets

Question 23

Statutory pre-emption rights require

Answer 23

require new shares to be offered (for a period of 14 days)
to existing shareholders first, in proportion to their existing holdings (s 561), before the
shares may be offered elsewhere – the offer to shareholders must not be on less
favourable terms.

Question 24

How are a new class of shares created?

Answer 24

Inserted into the articles of
association by was of a special resolution of the shareholder: s 21.

Question 25

Directors must ensure they have authority to

Answer 25

Allot new shares

Question 26

Under Model Article 26

Answer 26

Under Model Article 26, the directors must approve any share transfer.