7.9 Share Funding Flashcards
What are the two main ways that Companies raise share capital?
Debt finance
Equity finance
What is debt finance?
Where a company borrows money to raise capital
What is equity finance?
Company issues shares in return for cash
If a company was incorporated prior to 1 October 2009, what would it have in terms of shares?
A limit on the number of shares it could allot in its memorandum of association
For companies incorporated on or after 1 October 2009, there is what in terms of shares?
No limit on the number of
shares the company is permitted to allot unless its articles expressly state otherwise by
specifying an upper limit.
A private company with unamended/ Model Articles has what?
No restriction on the number of shares it can allot
What is capital maintenance?
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
What is the nominal value?
Value of the share set out in the statement of capital at incorporation
What is the purchase price?
Total that the shares are bought for. Generally is at a higher price than their nominal value
The difference between the nominal value and purchase price is called the
Share premium
When a company is incorporated, what form sets out the type of shares it has
Form IN01
If directors want to allot different classes of shares with different rights, what must the directors seek
shareholder approval via an ordinary resolution
What rights do ordinary shares in a private limited company that has Model Articles do?
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
What does it mean to say shares are allotted?
A person acquires the right to have the shares etc be included in the company’s register of members
What does it mean to say the shares are issued?
When the allotment has been registered the company’s register of members
Private company with only one class of shares - can directors allot shares?
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
Directors of private companies with more than one class of shares and public companies will
need - to allot shares:
shareholder permission
What are pre-emption rights?
Pre-emption rights ensure existing shareholders are given the first right to purchase new equity
securities: Companies Act ss 560–577.
Equity securities are defined as
Ordinary shares
Statutory pre-emption rights apply unless:
- 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.
Exclusion of f pre-emption rights: how can this be achieved?
in the company’s articles
Company’s cannot sell shares at:
A lower price than their nominal value. Criminal offence
problems arise when shares are issued for assets
Statutory pre-emption rights require
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.
How are a new class of shares created?
Inserted into the articles of
association by was of a special resolution of the shareholder: s 21.
Directors must ensure they have authority to
Allot new shares
Under Model Article 26
Under Model Article 26, the directors must approve any share transfer.
