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bee l p > 8. Equity Finance > Flashcards

8. Equity Finance Flashcards

1
Q

“Capital”

A

funds available to run business of the company

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2
Q

“Injection of Capital”

A

company requires more finance or funding to run the business

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3
Q

“Share Capital”

A

money raised by issue of shares (contributed by investors in the company)

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4
Q

“Share”

A

a BUNDLE OF RIGHTS

  • investor becomes part owner (share gives you % of ownership)
  • investor has voting rights in SH meetings
  • only get investment back on sale of their stake, of company, on floatation, or when comp is wound up (if funds avaliable)
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5
Q

incentive for investing as SH

A

1) receipt of income (dividend)
2) cap gain (growth in value of comp and therefore individual shares)

NB. Neither guarenteed

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6
Q

issuing shares - effect on balance sheet

A

BOTTOM HALF: increase share capital to show nominal value of shares issued

TOP HALF: increase cash (current assets) to show cash received for shares

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7
Q

share certificates

A

S.768 – private companies must issue paper share certificates (public companies have it on the electronic system)

NB. Share certificate does not show MB paid for the share (just sets out par value)

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8
Q

nominal/par value

A

minimum subscription price for that share

  • represents a unit of ownership rather than actual value
  • shares in limited comp with share cap must have fixed nominal value (s.542(1))
  • if allot shares with no fixed nominal value = void (s.542(2))
  • shares cannot be allotted/issued at a discount to its nominal value (but can be in premium) - s.580
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9
Q

when are the shares issued?

A

Share is ISSUED when a member is in the register of members (full rights to shares given) and his title has been complete (s.112(2))

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10
Q

when are shares allotted?

A

Share is ALLOTTED when – a person acquires the unconditional right to be included in the company’s register of members in respect of those shares

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11
Q

when must shares be paid for?

A

not need to be immediatly

amount of nominal cap paid = “paid up” share cap

amount outstanding = can be demanded by company at any time, and once it is demanded, payment is “called”

USUALLY SH pays full nominal value of their shares

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12
Q

“called up share capital”

A

aggregate amount of calls made on company’s shares and existing paid up capital

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13
Q

allotment

A

creation of new shares

  • contract between company and SH where company agrees to issue new shares in return for purchaser paying subscription price
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14
Q

transfer (procedure diff. to allotment)

A

transfer of shares from one SH to another

  • contract between existing SH and purchaser for existing SH to sell shares
  • company not a party to this contract (exception: sale out of treasury of treasury shares)
  • might be stamp duty
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15
Q

treasury shares

A

Shares bought back by the company itself and held by the company ‘in treasury’

Treasury shares: issued shares held by the company in its own name (company can subsequently sell those shares out of the treasury)

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16
Q

sale of treasury shares

A

TRANSFER (not issue)

BUT:

  • S.561 pre-emption rights apply (s.560(3))
  • s.573 disapplication of pre-emption rights apply
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17
Q

5-point checklist for allotting shares

A
  1. Is there a cap?/Sufficient share capital?
  2. Authority to Allot?
  3. pre-emption (if to new SH and it is an ES)?
  4. Creating new class of shares?
  5. BR to allot shares
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18
Q

is there a cap?

A

CA 1985

  • authorised share cap in memorandum of association, transferred to articles under CA 06 S.28
  • articles amended now?

SOLUTION = OR (amend specific provision in articles) - under transitional provisions, or use SR (wholesale amendment of articles)

CA 06
- check articles for a cap
- if cap, check articles and resolutions that may have changed/removed it 
- register for use of cap already
(no req. to have ASC)

SOLUTON = SR (s.21(1))

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19
Q

Authority to Allot

A

check:

  • articles
  • any past resolutions (OR)
  • register of members/most recent confirmation statement (or SH01 forms filed) to check if new shares have been issued (if yes, has it reached s.551 authority limit?)
SOLUTION:
CA 1985: OR only
CA 2006:
- s.550 = none
- s.551 = OR (limited in number of shares and time)
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20
Q

Pre-emption

A

check:

  • articles (existing disapplication)
  • past resolutions (SR)

s.567

SOLTUTION: SR
if s.550 - s.569
if s.551 - s.570 (or s.571)

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21
Q

right of pre-emption

A

s.561 - if it is an equity security

ES defined in s.560

  • ‘Ordinary share’
  • not capped for either dividend or capital or both
  • NOT ES IF BOTH RIGHT TO DIVIDEND AND CAPITAL = CAPPED
22
Q

equity security

A

NOT ES if both right to capital and right to dividend is capped

if either not capped or neither capped = equity security

23
Q

Creating new class of shares?

A

check articles to see if it is a new class of shares

SOLUTION: SR to amend articles to add new provisions to deal with rights attached to new class (s.21)

24
Q

BR to allot shares (and instruct CS on PMM)

A

BR (MA3)

25
Q

authorised share capital

A

max no. of shares company MAY issue in total

Set out in memorandum which is transferred to articles of association under s.28

26
Q

issued share capital

A

number of shares company actually issued

27
Q

if private company with 1 class of shares

A

s. 550 = authority to allot under

s. 569 = SR to disapply pre-emption

28
Q

which resolution first?

A

s. 570 (power to disapply pre-emption) RELIES on s.551 authority
- s.570 ceases to have effect if s.551 is revoked/expired
- PASS S.551 OR FIRST!!

29
Q

ways to disapply s.561 (common ways)

A

S.570 GENERAL DISAPPLICATION (SR or in articles)

  • not permanant
  • attaches to s.551 authority

S.569 PRIVATE COMPANY WITH 1 CLASS OF SHARES (SR)
- attaches to s.550 authority

30
Q

ways to disapply s.561 (less common ways)

A

SPECIFIC DISAPPLICATION OF PRE-EMPTION RIGHTS (S.571) (SR)

EXCLUSION OF PRE-EMPTION RIGHTS IN ARTICLES (S.567) (no protection from dilution so rarely used - only used for subsidiaries usually)

PRIVATE COMPANIES WITH ONE CLASS OF SHARES disapplication in articles (S.569) - unusual, leaves SH with no protection from dilution

31
Q

SPECIFIC DISAPPLICATION OF PRE-EMPTION RIGHTS (S.571)

A
  • for particular person or as consideration for specific purpose
  • cumbersome comp to s.570
  • directors have to provide SH with written statement explaining reasons for (1) specific disapplication and (2) amount to be paid to company pursuant to allotment and justification of amount
32
Q

when would you not need GM

A
  • NO CAP
  • not require authorisation (already got authority, or s.550)
  • issuing to existing SH pro rata and follows s.562 or disapplied s.561 or uses s.567
  • has relevant class rights in articles

(WOULD STILL NEED BR TO ALLOT SHARES)

33
Q

PMM if removing cap

A
  • file new articles (s.26(1))

CA 06: file SR to amend articles - s.29(1)a, s.30(1))

CA 85: file OR to remove cap (transitional provisions, s.29(1)e, s.30(1)a)

34
Q

PMM if granting authority to allot

A

s. 551
- OR (s.551(9), s.29(1)e, s.30(1)) within 15 days)

s.550
CA 06 - no action
CA 95 - file OR (transitional provisions, s.29(1)e, s.30(1))

35
Q

PMM if disapplying pre-emption rights

A
  • file SR (s.29(1)a, s.30(1)) within 15 days after it passed)
36
Q

PMM if creating new class of rights

A
  • file amended articles at CH (s.26(1)) within 15 days after it passed)
  • file SR at CH (s.30(1)) within 15 days after it passed
37
Q

PMM - Allotment of shares by BR

A
  • file return of allotment in prescribed form (SH01) at CH within 1m of allotment (s.555(2))
  • file statement of cap (s.555(3)b)
  • update reg of members (S.112, S.113) WITHIN 2 MONTHS (s.554)
  • share cert to new members (s.769) within 2 months
  • PSC changed? if yes, change PSC reg (s.790M) and file at CH (s.790VA)
  • minutes for BM (and GM if there was one)
38
Q

authorisation - can it be revoked/varied?

A

yes - even if authority is in articles

39
Q

if agreement to allot shares was entered into before expiry of s.551 authority (and expired at time of allotment)

A

valid (s.551(7)(a))

40
Q

shares are allotted without authority

A

director commits criminal offence (s.549(4))

41
Q

if equity security wholly or partly paid up otherwise than in cash

A

Pre-emption rights DO NOT APPLY (s.565)

42
Q

ORDINARY SHARES

A
  • Most common form
  • One vote per share
  • Right to dividend if declared
  • Right to portion of surplus assets of company on winding up
  • Might have variety of different classes of ordinary shares with differing rights and differing nominal values
43
Q

PREFERENCE SHARES

A
  • preference as to dividend or capital payment (higher priority)
  • usually non-voting
  • Amount of preferred dividend usually expressed as a % of the par (nominal) value of the share
  • if issued at premium to par, and fixed div intended to be paid based on par plus premium, share right must expressly state div will be calculated as % of total subscription price per pref share
  • usually CUMULATIVE unless otherwise stated (i.e. if not paid, paid when available profits with other dividends due)
44
Q

PARTICIPATING PREFERENCE SHARES

A
  • can participate with ordinary shareholders in surplus profits after received own fixed preferred div and/or surplus of comp assets on winding up
  • cumulative if stated as such
45
Q

DEFERRED SHARES

A
  • No voting rights
  • No ordinary dividend
  • Sometimes entitled to share of surplus profits after other dividends have been paid (if there is a surplus)
  • Usually no rights at all
  • Just used where ‘worthless’ shares are required
46
Q

CONVERTIBLE SHARES

A

Contains option to convert into different class of share according to stipulated criteria

47
Q

REDEEMABLE SHARES

A

Shares issued with intention that company will (or may wish to) at some time in the future buy them back and cancel them

48
Q

class rights

A

if attempt made to alter articles so existing class rights are varied –> resolution NOT EFFECTIVE unless in accordance with provisions in articles for variation of rights

IF NO PROVISIONS - resolution effective only if consent of at least 75% of issued share holders of that class and SR passed at seperate GM of holders of that class (s.630)

SH holding 15% of relevant shares may apply to court within 21 days of SR to have variation cancelled (s.633(2))

following app - variation won’t take place unless and until confirmed by court (court will consider how variation prejudices SH of class)

49
Q

Communication of pre-emption offers

A

hard or electronic form

  • must state period where it must be accepted and offer cannot be withdrawn in that time
  • must be for period of at least 14 days beginning when offer sent/publication on Gazette
50
Q

companies’ annual confirmation statement

A
  • info relating to shareholdings must be provided (s.853F)
  • info about reg office, personnel, personnel information, CS, PSC register - 853B
  • statement of cap at same time delivered (unless no changes made to cap since last statement) - s.853D
51
Q

Conditions to be met for X to be a PSC over the company:

A

part 1 sch A

52
Q

distribution

A

s. 830(1) - company can only make distribution out of profits available for the purpose
s. 829(1) distribution means distribution of assets to members in cash or otherwise

EXEPTIONS:
- assets to members of a company on winding up (s.829(2)d)

bee l p (15 decks)

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