8 Companies: Finance Flashcards
What are the two main sources of finance for a company?
Share Capital
Loan Capital
What is a person who invests in shares of the company?
An owner - when you buy shares you’re buying an interest in the company which gives you rights and obligations.
What is a person who invests in debentures?
A creditor of the company - they receive interest and can sue if not received.
What are the rights of a shareholder?
- Vote
- Attend meetings etc
What are a shareholders obligations to the company?
Mostly their liability to the company which is the value of their unpaid share capital.
What is a debenture?
A document stating that the company owes someone money which will detail the amount, terms and security etc.
What voting rights does the owner of a debenture have?
None
Does a shareholder have voting rights?
Yes, number of votes is determined by the amount of and class of shares they hold.
What rights does a debenture holder have re income?
They get a fixed amount of interest. If the company doesn’t pay them the interest, the holder can sue.
What right to income does a shareholder have from a company?
No rights but dividends can be voted at the directors discretion.
Re debentures and shareholders, who has priority in liquidation?
Debentures have priority and shareholders will receive anythjng left over after paying all its creditors.
What are the different classes of shares?
Ordinary shares
Preference shares
What is an ordinary share?
- Default share type
- Last to be paid on liquidation
- No fixed dividend
- Full voting rights
What is a preference share?
- Fixed and cumulative dividends; holder will receive a fixed dividend while profit making but if they start making losses, they will receive two lots of dividends when profit making again
- No voting rights - will only get rights if their dividend hasn’t been paid for a year
What is ‘Issued Share Capital’?
Value of shares sold by the company
What is ‘Paid up Capital’?
Amount of the capital paid by the members
What is ‘Unpaid Capital’?
Proportion of share capital still outstanding
What is ‘Called up share capital’?
Proportion of unpaid capital requested to be paid.
What are the 3 special ways of issuing shares?
- Bonus issue
- Rights issue
- Through pre-emption rights
What is pre-emption rights?
- When new shares are sold, you have the right to be offered before anyone else.
What are the two types of pre-emption rights?
- Statutory: new shares offered in proportion to their current holding. Get 21 days to get them.
- Other pre-emption rights: give members pre-emption rights through articles of association.
What are bonus issue shares?
- Company gives existing members shares for free in proportion to their existing share holding e.g. 1:2.
- Funded from share premium account.
What are right issue shares?
- Give members opportunity to buy more shares in proportion to their existing holding e.g. 1:2.
- Usually sold for less than market value but can never sell a share below nominal value.
What are redeemable shares?
- Shares which under their terms of issue can be bought back by the company at a certain time.
