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SQE (Jonathan) > BLP: Equity Finance > Flashcards

BLP: Equity Finance Flashcards

1
Q

What are shares?

A

Shares are a bundle of rights that make an investor a part owner of the company, often with voting rights. The incentive is income from dividends and capital gains.

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2
Q

What is the nominal or par value?

A

Shares must have a fixed nominal value; it’s the minimum subscription price and cannot be allotted at a discount.

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3
Q

Can a share be allotted at a premium?

A

Yes, a share may be allotted for more than its nominal value; the excess is known as the premium.

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4
Q

What are issued shares?

A

The total amount of shares in issue at any time, including subscriber shares and further shares issued.

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5
Q

What are allotted shares?

A

Shares are allotted when a person acquires the unconditional right to be included in the company register of members.

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6
Q

What are called up/paid for shares?

A

Shareholders don’t need to pay the full amount immediately; the amount paid is ‘paid up share capital.’

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7
Q

What are treasury shares?

A

Shares bought back by the company itself and held in treasury, which can be sold, canceled, or transferred.

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8
Q

What are ordinary shares?

A

Default shares that carry voting rights, rights to dividends if declared, and a right to a portion of surplus assets on winding up.

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9
Q

What are preference shares?

A

Shares that rank higher than ordinary shares for dividend payments or returns of capital on winding up.

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10
Q

What are cumulative preference shares?

A

Preference shares that accumulate unpaid dividends to be paid in future years unless stated otherwise.

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11
Q

What are participating preference shares?

A

Shareholders who participate in surplus profits after receiving their fixed preferred dividend and in surplus assets upon winding up.

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12
Q

What are deferred shares?

A

Shares that carry no voting rights or ordinary dividends but may allow a share of surplus profits after other dividends.

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13
Q

What are redeemable shares?

A

Shares issued with the intention of the company buying them back and canceling them in the future.

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14
Q

What are convertible shares?

A

Shares that carry an option to convert into a different class of share.

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15
Q

What is variation of class rights?

A

The rights attached to each class are in the Articles, and variations require consent from 75% of the class or a special resolution.

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16
Q

What are dividends?

A

Payments to shareholders that are only payable if the company has sufficient distributable profits.

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17
Q

What are final dividends?

A

Dividends recommended by directors and declared by ordinary resolution following the financial year-end.

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18
Q

What are interim dividends?

A

Dividends that directors can pay if sufficient distributable profits exist, usually without needing shareholder resolution.

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19
Q

What is allotment?

A

A contract between a company and a shareholder whereby new shares are issued in exchange for a subscription price.

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20
Q

What are the restrictions on private companies regarding shares?

A

Private companies cannot offer their shares to the public and can only target specific investors.

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21
Q

What is the prospectus requirement?

A

Companies may need to publish a prospectus detailing the company and investment when offering shares.

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22
Q

What are financial promotions?

A

Under FSMA, invitations to engage in investment activity are prohibited unless certain requirements are met.

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23
Q

What is transfer?

A

A contract to sell existing shares between shareholders; the company is not a party unless selling treasury shares.

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24
Q

What are restrictions on transfer?

A

Directors may refuse to register a transfer, and pre-emption clauses may require offers to existing shareholders first.

25
Q

What is transmission?

A

An automatic process where shares pass to personal representatives upon a shareholder’s death or to a trustee upon bankruptcy.

26
Q

What is the cap problem?

A

Before issuing shares, check the Articles for any cap on the number of shares; if exceeded, it must be removed.

27
Q

How can a cap be removed?

A

For companies under CA 1985, it can be removed by ordinary resolution; under CA 2006, it can be increased or removed by special resolution.

28
Q

What do directors need to allot shares?

A

Directors need prior authority from shareholders to make an allotment via board resolution.

29
Q

What are pre-emption rights?

A

Rights of existing shareholders to be offered new shares pro rata before offering them to outside investors.

30
Q

When must existing shareholders be offered shares?

A

When the allotment concerns ordinary shares or rights to subscribe for ordinary shares, subject to pre-emption rights.

31
Q

How can pre-emption rights be disapplied?

A

By a specific provision in the Articles or by a shareholder special resolution.

32
Q

Are new class rights needed when issuing shares?

A

Yes, a new class of shares requires a provision in the Articles detailing the rights attached.

33
Q

What must directors do to allot shares?

A

Pass a board resolution to allot new shares after ensuring compliance with any required shareholder resolutions.

34
Q

What are the administrative requirements after allotting shares?

A

Send resolutions to Companies House, update the register of members, and issue share certificates within two months.

35
Q

What is financial assistance?

A

Rules prohibit certain companies from providing financial assistance for share acquisitions.

36
Q

What transactions are rules applicable to?

A

Financial assistance applies to acquisitions or proposed acquisitions of shares by transfer or issue.

37
Q

What companies are prohibited from giving financial assistance?

A

The target company and its subsidiaries are prohibited, with rules differing for public and private companies.

38
Q

What constitutes financial assistance?

A

Financial assistance includes gifts, guarantees, loans, or any aid that reduces the company’s net assets.

39
Q

When is financial assistance unlawful?

A

If given specifically for the purpose of acquiring shares, unless it falls under certain exceptions.

40
Q

What are the unconditional exceptions to financial assistance?

A

Certain transactions, like dividend payments, are exempt from prohibition.

41
Q

What are the conditional exceptions to financial assistance?

A

Money lending in the ordinary course of business can be exempt under specific conditions.

42
Q

What is maintenance of share capital?

A

Share capital cannot typically be returned to shareholders; dividends must come from distributable profits.

43
Q

What are the exceptions to the buyback prohibition?

A

Companies can buy back shares following specific procedures or if a court order is made due to unfair prejudice.

44
Q

What is a buyback?

A

A buyback is when a company purchases its own shares from existing shareholders.

45
Q

What methods can a company use to fund a buyback?

A

Using distributable profits, proceeds from a fresh issue of shares, or capital under strict regulations.

46
Q

When can a company buy back shares out of profits?

A

If the purchase is not restricted, shares are fully paid up, and the company has other issued shares.

47
Q

What is the procedure for a buyback out of profits?

A

Check for limits, prepare accounts, pass a board resolution, and file necessary forms with Companies House.

48
Q

When can a company buy back shares out of capital?

A

Only private companies can do this under certain conditions and following specific procedures.

49
Q

What is the timing for share purchase after a special resolution?

A

Share purchases can take place no earlier than 5 weeks and no later than 7 weeks after the resolution.

50
Q

What notification is required after passing a special resolution for a buyback?

A

Notify creditors through the Gazette, national newspapers, or individual notices within 7 days.

51
Q

What are financial services under FSMA?

A

Advising, dealing, and arranging investment products on behalf of clients.

52
Q

What is the general prohibition under FSMA?

A

No one may carry on regulated activity in the UK unless authorized or exempt.

53
Q

What is a specified investment under FSMA?

A

Investments that include shares, bonds, and regulated mortgage contracts.

54
Q

What is a specified activity under FSMA?

A

Activities like dealing in investments, managing investments, and advising on investment merits.

55
Q

What activities are excluded under FSMA?

A

Certain necessary activities related to non-investment business may not require authorization.

56
Q

What conditions must be fulfilled under FSMA?

A

Solicitors must be authorized or supervised, and activities must be incidental to their professional services.

57
Q

What does s.327 FSMA require?

A

Professionals must not receive commissions from third parties unless disclosed to the client.

58
Q

What does SRA Rule 2 of Scope Rules state?

A

Firms must ensure that activities arise out of or complement their professional services.

SQE (Jonathan) (2 decks)

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