Business Law And Practice: Equity Finance Flashcards
What is allotment of shares?
- is the creation of new shares for an existing or new shareholder in a company in exchange for consideration
What is a share transfer?
- when a existing shareholder sells or gives shares to a new or existing shareholder
What is the buyback of shares?
- when a company buys back shares from an existing shareholder, effectively reducing the number of shares in the company
What is an ASC clause and how can it be removed?
- ASC stands for authorised share capital which is the limit of shares a company can allot
- companies incorporated before 2009 must pass a ordinary resolution to remove ASC
- for companies incorporated after 2009 if the companies article have a limit
On number of shares a company can have this can be changed by special resolution
Do directors have the right to allot shares?
- for private companies with one class of shares incorporated under the CA 2006 no approval is needed from shareholders simply need to hold a board resolution (S550 Ca2006)
- for public companies and private companies with more than one share class (section 551 ca 2006) ordinary resolution by shareholders needs to be passed
What are pre-emption rights?
- rights of first refusal over shares that are being allotted, these should offered to existing shareholders ensuring the number of shares that would allow the shareholders to preserve their existing shaareholding before allotting shares to new shareholder
What is the minimum period of acceptance when a shareholder is offered new shares as part of their pre-emption rights?
- no less than 14 days
What is the minimum period of acceptance when a shareholder is offered new shares as part of their pre-emption rights?
- no less than 14 days
What types of shares can a company have?
- ordinary shares provides voting rights and entitles shareholders to dividends
- preference shares gives a shareholder priority over dividend and company’s assets
After allotment has taken place when must company issue share certificate?
- must be provided to new shareholder within 2 months
After allotment where must the details of the new shareholder be entered?
- in the register of members
After allotment what form should be completed and filed with companies house and within what time frame?
- form SH01 must be completed and filed within 1 month of the allotment
For companies incorporated before CA 2006 came into force in 2009 where can details of restrictions on allotment be found?
- prior to the CA 2006 the companies memorandum contained a limit on number of shares a company could have called an ASC (authorised share capital)
- this was transferred to the companies articles after CA 2006 came into force so if a company has not updated their articles since they will need to check for this
How can an ASC clause be removed from companies articles of association for companies incorporated prior to 1 October 2009?
- an ASC clause can be removed by ordinary resolution and a copy of the resolution must be filed with companies house
(This is an exception of the general rule that special resolutions are required to amend companies articles of association)
For companies incorporated after 1 October 2009, how can an ASC clause be removed from articles of association?
- by special resolution of the shareholders
What process must be followed to allow directors to allot shares?
- for private companies with 1 share class incorporated under the CA 2006 directors have the power to allots shares under s550 as long as they pass a board resolution
- for plcs and private companies with more than one share class shareholders must pass a ordinary resolution (if no authority is provided in the companies articles)
What are the exceptions to pre- emption rights?
-1 shares issued for non cash consideration
- if the pre-emption rights are excluded in the articles of association
- if the pre emption rights are dissapplied by way of special resolution
- employee share schemes
- bonus shares issues to shareholders
When must payment for shares be made?
- under MA 21 all shares in the company must be paid for as soon as possible receipt is confirmed ( unless the companies articles does not include MA 21 then partial payment can be made and remainder of the company is wound up)
When shares are sold for a premium were must this be recorded?
- when the value of shares within the company increases this means that the shares are sold for premium as it is more than the original value
- the excess consideration will be recorded in the companies balance sheet in a separate share premium account
After a company has allotted shares what administration tasks must it conduct?
- company will need to prepare minutes for every general meeting and board meeting
- copies of the resolution must be sent to companies house within 15 days
- company forms to be sent to companies house
- entries made in companies registers
- prepare and allocate share certificates
What is the transfer of shares?
- this is when a shareholder transfers shares to a new or existing shareholder
Can existing shareholders block the transfer of shares to new shareholder?
- yes as in order for shareholder to be registered it must be entered in the companies register of members model articles 26 gives power to the board to refuse this
If a share transfer takes place but the board refuses to enter the new shareholder on the register of members are they are a shareholder?
- no they will instead be the beneficial owner of the shares but the transferor (original shareholder) will remain the legal owner
What steps must be taken buy transferor and buyer for a stock transfer to take place?
- transferor must complete a stock transfer form
- if the shares are worth more than £1000 the buyer must pay relevant stamp duty (if the shares are a gift no stamp duty is paid)
- the transferor must then send the stock transfer to the company which the shares are held with
What steps must be taken by a company to process a stock transfer request?
- company must send the new shareholder a new shake certificate in their name within two months
- notify the register of companies of the change in ownership when the company files it annual confirmation statement
What is transmission?
- an automatic process whereby if a shareholder dies their shares are automatically pass to their personal representatives
- if a shareholder is made bankrupt their shares automatically vest in their trustee in bankruptcy
What are preference shares?
-preference shares gives shareholders priority over dividends paid but do not have voting rights
What is a companies share capital?
- a companies share capital is the money provided by shareholders in return for owning company shares and can not be removed from the business
When can a company buy its own shares?
- a company can buy its own shares back if it complies with the formalities stipulated under s 690
- a company can buy back its own shares if a court order is made to buyout a unfairly predudiced shareholder
- a company can return shares to shareholders when winding up
What formalities must be followed for a company to buyback shares?
- the companies articles must allow buyback of shares
- the shares must be fully paid
- the companies must pay for the shares at the time of purchase
- the shares must be paid for out of companies distributable profits
- the company must pass an ordinary resolution authorising the buyback
- a copy of the contract must be made available for inspection 15 days before general meeting
- a copy of the contract must be made available on the companies office or sail for ten years
What kind of company can buyback shares from using share capital and what steps must be take ?
- private companies
1. Companies directors must make a statement of solvency (must have attached to it an audtiors report) must be made a available no less than one week before board meeting
2. Shareholders must pass ordinary resolution authorising the buyback and special resolution to authorise the payment of capital
3. File sos and auditors report then place notice in London gazette and other newspaper within one week
4.
What is equity finance?
- Raising money by selling shares in a business.
