BLP - Week 5 Equity Finance Flashcards
What is share capital?
- Money raised by the issue of shares.
- It is contributed by investors and represented by shares issued to them.
What do shares represent?
A bundle of rights.
What is the most common type of share?
Ordinary share.
What rights do ordinary shares provide?
- Entitlement to vote at shareholder meetings, AND
- Right to receive a share of profits, AND
- Right to surplus assets after winding up.
- Defined by law as shares with unlimited rights to dividends and capital distribution when a company is wound up.
What is the nominal or par value of a share?
The fixed minimum subscription price for that share.
What happens if a share does not have a fixed nominal amount?
The allotment of that share is void.
What is issued share capital?
The total amount in value (nominal and premium) of all shares in issue at any time.
What is paid-up share capital?
The amount of money a company has received from shareholders in exchange for shares.
When is the full legal title of the shares achieved?
Once a person’s name is entered on the company’s register of members.
What are called-up shares?
Shares for which payment has been requested from the shareholder.
What defines the rights of different classes of shares?
The company’s Articles.
What are preference shares?
Shares that give priority in dividend payments and/or return of capital upon winding up.
What does it mean if preference shares are cumulative?
- Dividends accumulate for future payment if not declared in a given year.
- Preference shares are cumulative unless stated otherwise.
What is the difference between participating and non-participating preference shares?
- Participating: allow holders to share in surplus profits and assets available for distribution after receiving their fixed dividend and/or surplus assets on winding up.
- Non-Participating: Shareholders receive a fixed dividend only.
How do participating preference shares work: Shareholders receive a fixed 5% dividend on the par value of shares per annum (£1).
- 5p per share annually.
- Paid before ordinary shareholders.
- Also entitled to share in any remaining dividends with ordinary shareholders.
How do non-participating preference shares work: Fixed 5% dividend on the total subscription price (£2).
- 10p per share annually.
- Paid before ordinary shareholders.
- Do not receive any additional dividends beyond the fixed rate.
What are the two types of dividends?
- Final dividends
- Interim dividends
What kind of approval needed for final dividends?
Recommended by directors and approved by shareholders by OR after the financial year.
What kind of approval needed for interim dividends?
MA (/check articles if allowed) give the directors the power to decide to pay interim dividends if the company has sufficient distributable profits. Doesn’t need shareholder approval/OR.
What is required for a dividend to be payable?
The company must have enough distributable profits.
Distributable profits = accumulated profits minus accumulated losses.
What is the difference between allotment and transfer of shares?
- Allotment: Issuing new shares to a shareholder.
- Transfer: Selling existing shares between shareholders.
What happens to shares upon a shareholder’s death?
Shares pass to their personal representatives.
What is the method of transferring shares?
Using a stock transfer form signed by the seller and submitted with the share certificate.
When does beneficial ownership and legal ownership pass from seller to buyer?
- Beneficial ownership - upon signing the stock transfer form
- Legal ownership - once the company registers the new shareholder in the register of members
