8. Companies: Raising Finance Flashcards

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1
Q

What are the two ways a company can raise finance?

A
  1. Equity
  2. Debt
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2
Q

What is equity finance?

A

Raising capital by selling shares in the company

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3
Q

What is a company’s share capital?

A

Money received on account of the nominal or par value of shares, which is not returned to the shareholders and is theoretically always available to pay creditors

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4
Q

For company incorporated after 2009, when will there not be any requirements on a director if they wish to allot more shares?

A

If the company only has one class of shares, and there is no restriction removing the director’s power

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5
Q

In other situations, e.g. where there are multiple classes of shares, what is required to allot new shares?

A

Ordinary resolution by the shareholders to approve of the directors’ decision to allot new shares, unless the articles provide otherwise.

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6
Q

What is the amount paid for shares that exceeds the nominal or par value, and where does this go?

A

Share premium, into the share premium account, and forms part of the same share capital which is not returned to the shareholders and is theoretically always available to pay creditors

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7
Q

What must shares be offered for in order for existing shareholders to have a preemption right?

A

Cash. Shares issues for anything else, e.g. property, will not give rise to the preemption right

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8
Q

Where a preemption right does arise, how long must the existing shareholders be given to decide whether to accept?

A

14 days

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9
Q

Does preemption apply to preference shares?

A

No

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10
Q

How is a preemption right disapplied?

A

Through special shareholder resolution, or by amending the articles

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11
Q

Under the model articles, what is the director’s right regarding a transfer of shares?

A

They have the absolute power to refuse to allow a transfer

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12
Q

What is debt finance?

A

Raising capital by borrowing it

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13
Q

Do the directors have the power to borrow money on behalf of the company?

A

Yes, unless excluded by the articles

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14
Q

Over what kinds of assets is a fixed charge granted over?

A

Assets the company will own for a substantial period of time, e.g., machinery

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15
Q

What is a floating charge granted over and when does it “crystallise”?

A

A group of assets that change regularly (inventory), and does not crystallise until default.

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16
Q

Within what time limit of the creation of a charge by a company must it be registered at Companies House?

A

21 days

17
Q

What is the impact of failing to register a charge at Companies House?

A

The charge is void against a liquidator or administrator of the company, and the company’s creditors

18
Q

How is the priority of fixed charges over the same asset determined?

A

Based on the date of their creation, as long as they were validly registered at Companies House

19
Q

How is the priority of floating charges over the same asset determined?

A

Based on the date of their creation, as long as they were validly registered at Companies House

20
Q

What is the priority of a fixed charge and a floating charge in the same asset?

A

As long as it is properly registered, a fixed charge will take priority over a floating in the same asset, even if the floating charge was created and registered first