8. Companies: Raising Finance

Question 1

What are the two ways a company can raise finance?

Answer 1

1. Equity
2. Debt

Question 2

What is equity finance?

Answer 2

Raising capital by selling shares in the company

Question 3

What is a company’s share capital?

Answer 3

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

Question 4

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

Answer 4

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

Question 5

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

Answer 5

Member’s ordinary resolution or provision in bespoke Articles

Question 6

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

Answer 6

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

Question 7

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

Answer 7

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

Question 8

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

Answer 8

14 days

Question 9

Does preemption apply to preference shares?

Answer 9

No

Question 10

How is a preemption right disapplied?

Answer 10

Through shareholder special resolution (on a case by case basis), or by amending the articles (to make it permanent)

Question 11

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

Answer 11

They have the absolute power to refuse to allow a transfer

Question 12

What is debt finance?

Answer 12

Raising capital by borrowing it

Question 13

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

Answer 13

Yes, unless excluded by the articles

Question 14

What is a fixed charge granted over?

Answer 14

Assets the company will own for a substantial period of time

Question 15

What is a floating charge granted over?

Answer 15

A group of assets that change regularly, and does not crystallise until default

Question 16

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

Answer 16

21 days

Question 17

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

Answer 17

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

Question 18

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

Answer 18

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

Question 19

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

Answer 19

Based on the date of their creation, as long as they were validly registered at Companies House
(Note that floating charges are always counted after fixed charges regardless of creation date)

Question 20

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

Answer 20

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