8 - Equity finance

Question 1

What is capital?

Answer 1

Funds available to run a business

Question 2

What is share capital?

Answer 2

Money raised by the issuance of shares

Question 3

What is issued share capital?

Answer 3

Total number of shares ACTUALLY issued

Question 4

Maintenance of share capital doctrine - why?

Answer 4

protects creditors on insolvency

Question 5

What is the Authorised Share Capital (ASC)?

Answer 5

Number of shares ALLOWED to be issued - CA 85 companies

Question 6

How does a company raise funds?

Answer 6

Issuing shares (equity finance), borrowing (debt finance), or retaining profits

Question 7

Allotment vs Issuance of shares?

Answer 7

Allot = unconditional right to be included in the register - can be part paid

Issue = SH has been registered into the register of members - title is complete, share certificate has been issued

Question 8

Allot/issue vs Transfer of shares

Answer 8

Allot/Issue = NEW shares - person is ‘subscribing’ shares

Transfer = the shares already exist, use STF to transfer

Question 9

What is the nominal value of shares?

Answer 9

Unit of ownership, not market value

Question 10

Subscription price of shares?

Answer 10

Amount paid by the SH. i.e. paid up share capital

Question 11

characteristics of ordinary shares

Answer 11

• rank equally
• 1 vote = 1 share
• right to a dividend if declared
• right to a portion of surplus on winding up

Question 12

what are preference shares?

Answer 12

• paid dividends before ordinary SHs
• paid capital on WU first
• cumulative dividend