Book - Chapter 1 ST Questions Flashcards
- A group of individuals have decided to form a company. At what point can they legally start to trade?
A business cannot operate as a limited company until it has been incorporated at Companies House under the Companies Act 2006 and incorporation does not take effect until Companies House issues a certificate of incorporation.
- What is the legal status of Articles of Association?
Every company is required to have Articles of Association and these are legally binding on the company and all of its members.
- How do ‘A’ ordinary shares typically differ from ordinary shares?
‘A’ ordinary shares do not usually carry any voting rights.
- An investor holds 1,000 ABC Co. Ltd ordinary £1 shares (50p paid) that cost £750. If the company went into liquidation, what iis the maximum loss that they could face?
As providers of risk capital, the investor woul,d be last to be paid out and so could potentially receive nothing. Their maximum potential loss would be the amount invested of £750 plus a further £500 that they would be called on to pay to make the shares fully paid.
- Do preference shares carry the right to vote?
Preference shares have no voting rights except when their dividend is in arrears and only in respect of matters that affect its payment.
- What is a proxy?
Shareholders are entitled to attend the general meetings of a company and vote on resolutions. They are also entitled to appoint a proxy to attend and vote on their behalf at the meeting.
- How are preference share dividends treated for income tax purposes?
Although they pay fixed rates of interest, preference share dividends are treated in the same way as dividends for income tax purposes.
- An investor holds 1,000 ABC DRs and the company announces a rights issue. Is the investor able to take up the rights offer or sell the rights in the market?
Investors cannot take up a rights issue or sell the rights in the market. Instead, the depositary bank sells the rights on behalf of investors and distributes the proceeds.
What is a covered warrant and where can it be traded?
A covered warrant is a traded call or put option that can be traded on the LSE.
