Business Principles Flashcards
For which 3 transactions would you use the written resolution procedure to expedite because the short notice resolution procedure only saves one day?
1) Long term service contracts
2) Share buy-backs
3) Loans/ related transactions
Ordinary resolution
More than 50% of votes (simple majority)
Special resolution
75% or more votes
Show of hands method of voting
1 vote per shareholder
Poll method of voting
1 vote per share
Short notice procedure for GM
SHs holding shares with nominal value of at least 90% of the total nominal value of the shares agree AND majority in number
Adjourns BM1 which then reconvenes after GM
Ordinary share (most common form + default under MA)
- Vote at GM
- Unrestricted right to dividend of one declared (although do receive dividends after preference SHs)
- Right to portion of surplus assets of company on winding-up
Can have many classes of OS with different rights and different nominal values
Ordinary shares are always equity securities
Nominal/ par value of share
Minimum subscription price (unit of ownership, NOT value of share. Market value often higher than nominal value)
Shares can be allotted at a discount (lower than nominal value) or premium (higher than nominal value)
Issued share capital (ISC)
Total amount of all shares in issue (subscriber + shares issued after incorporation to new and existing shareholders)
Paid up share capital
Called up share capital
Paid up = amount of nominal capital paid by SHs
Called up = aggregate amount of existing paid-up share capital + calls made on shares
(Amount outstanding (if any) can be demanded/ called by company at any time)
Share capital
= money raised by issuing shares to investors
Subscription shares + newly issued shares
Allotment of shares
When a person acquires the unconditional right to be included on the company’s register of members in respect of those shares
Issue (shares)
Shares issued and part of ISC once shareholder is registered in company’s register of members and their title has become complete
Time limit for completion of administrations?
12mos but could get extension
Capital
Funds available to run the business of the company
Share
= bundle of rights
- Ownership of business
- Different classes have different rights/ entitlements (see Articles)
Incentives to buy shares
Dividends (income from company’s distributable profits if sufficient) + capital gain (profit when sell shares to realise their increased value)
NEITHER are guaranteed
Treasury shares
= shares bought by company itself out of distributable profits. Held by the company ‘in treasury’ where they can be sold out of
Sale of them is a TRANSFER, not issue. BUT pre-emption rights and their disapplication apply
Distributable profits
= company’s accumulated realised profits less its accumulated realised losses
X2 types of dividends
1) Final: recommended by directors and declared by company via OR of SHs following financial year end
2) Interim: without OR/ often if company has realised an investment. Company must have sufficient distributable profits. Articles give directors power to decide to pay them usually
Preference shares
= preferences as to payment of dividend if dividend declared (% of nominal value or total subscription price (nominal + premium)) +/or return of capital on winding up
- Higher priority than any equivalent payment to ordinary SHs
- Uusally non-voting but check Articles
- Presumed cumulative (dividends accumulate until there are available profits) but can be non-cumulative
- Participating (almost always issued with fixed dividend and can be cumulative) = can receive available surplus profits on top of dividend + surplus assets on winding up
Deferred shares (‘worthless’)
= no voting rights, no dividend, but could get share of surplus profits once other dividends paid
Redeemable shares (buy back)
= intention that company will buy back and cancel them. Terms usually specified
Convertible shares
= option to convert into different class of share according to stipulated criteria
When do long term investors of a private company realise their investment?
When their stake is sold, the company is sold, the company goes public, the company is wound up
Variation of class rights - how to do?
Alter articles - methods:
- According to article provisions
- SHs with at least 75% of issued shares in that class consent in writing
- SR @ GM of SHs of that class
Variation of class rights - how to oppose?
SHs holding 15% of relevant shares can apply to court within 21 days of resolution to have the variation cancelled (provided they didn’t vote in favour of it initially)
Variation won’t take effect until confirmed by court if such as application is made
Court wouldn’t confirm a variation that unfairly prejudices SHs of the class in question
Allot
Company issues shares to SH for a price
Transfer
SH sells or gifts shares to SH (new or existing)
(Although company is the only party for transfer of treasury shares)
Transmission
Automatic if SH dies or goes bankrupt
Shares to PR (death)
Shares to trustee (bankruptcy)
Fixed asset (aka non-current)
Tangible (building, etc - physical) or intangible (trademark etc)
Current asset
Cash and assets which can be quickly turned into cash
Continually flowing through business
Eg inventory stock, trade debtors (bought on credit/ owe the business)
Liability
Current (1yr) and long term (at least 1yr)
Income
Sums received by business
Expense
Day to day spending (revenue/ income expenditure) rather than long term assets (capital expenditure)
What are the x5 year end adjustments made to ensure accurate record of the state of a company is kept?
1) Depreciation: deals with decline in value of fixed assets over time by spreading cost over its useful life. Straight line method (same charge each year, eg for shelving) vs reducing balance method (higher charge earlier on, eg for vehicles). Amortisation is depreciation for an intangible asset’s cost
2) Accuruals: business gained the benefit of something but didn’t pay for it until the following year (have to adjust for this to profits aren’t artificially inflated)
3) Prepayments: opposite to accruals - business pays for something in advance of receiving its benefit
4) Bad debts: written off debts the company will never get back. Shown on profit/ loss account
5) Doubtful debts: debts that may not be paid - treated as a liability against asset it most directly affects. Can be specific amount or a general provision of percentage of debtors that may not pay what they owe (eg due to market forces). Ringfencing used to cushion some net asset value in case doubtful debts do indeed need writing off
