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LAW > c9 general > Flashcards

c9 general Flashcards

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1
Q

if a co’s constitution does not specify any distinction between its shares, it is assumed that they are ordinary shares

A

true

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2
Q

preference vs ordinary : dividends

A

preference - a preferential right to a dividend but no right to compel the payment of a dividend, cumulative, may be participating (may participate in profits of Co)

ordinary - yes - discretionary dividends

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3
Q

preference shares - undeclared dividends - are they entitled?

A

undeclared dividends cease to be payable on winding up UNLESS the dividend has been declared but not yet paid when liquidation commences

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4
Q

preference vs ordinary : voting rights

A

ordinary - yes

preference - yes BUT commonly disapplied in the articles

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5
Q

preference vs ordinary : preemption rights

A

preference - no

ordinary - yes

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6
Q

preference vs ordinary : right to share in capital/share surplus profits on winding up

A

preference - a right to be repaid capital and share in surplus profits (articles usually say: right to capital in priority to ordinary SHs but no right to share surplus profits)

ordinary - a right to be repaid capital and share in surplus profits

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7
Q

preference vs ordinary : right to participate in a rights issue

A

preference - no

ordinary - yes

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8
Q

In the absence of any express provision in the company’s articles of association, how are class rights varied?

A

special resolution of the relevant class (75%)

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9
Q

redeemable shares - ltd vs plc - when can they be issued?

A

plc = to list them, must be authority to do so in the articles of association

ltd = may specifically exclude or restrict their issue

can only be issued when there are other share classes in issue

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10
Q

what are class rights?

A

rights attached to each class of shares. a notice outlining any variation must be given to registrar within 1 month of variation

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11
Q

how can you vary class rights?

A

special resolution

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12
Q

class rights - minority protection

A

the holders of at least 15% of the shares in variation can apply to the court < 21 days to have the variation cancelled - must be about shares which change has happened!!!

court can either: confirm variation or cancel on basis of ‘unfairly prejudicial against minority SHs’

court cannot: vary the terms of the change

if the rights change for other classes as a result (but no direct change to their rights) - cannot go to court!!!

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13
Q

allotment of shares : ltd, 1 class

A

directors may allot shares unless articles prohibit him from doing so

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14
Q

allotment of shares: ltd w/ >1 share class, plc

A

-ordinary resolution or authority given in the articles

-max no of shares to be alloted, expiry date (not more than 5 years) - this can be given/varied by ordinary authorisation

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15
Q

rights issue

A

additional shares offered to ordinary SHs (not preference) in ratio to existing shares. members can either: accept or sell their rights

maintain their SH %

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16
Q

bonus issue

A

free shares given to existing shareholders in proportion to their SHings. capitalisation of reserves (cr share cap dr share prem)

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17
Q

define : rights of preemption

ordinary vs preference

A

the right of first refusal for existing shareholders before a Co may proceed with a share issue. must offer equity shares to existing SHs on a pro rata basis - they have at least 21 days to accept. unaccepted shares can then be offered on the same or less favourable (NOT MORE FAVOURABLE TERMS) terms to non-members

ordinary - yes
preference - no

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18
Q

exceptions to pre emptions rights :

A

bonus shares
shares issued for non cash consideration
employee share schemes

exclusions in the articles (PRIVATE ONLY) or by special resolution

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19
Q

shares at a discount

A

shares sold < NV = PROHIBITED

NOT THE SAME AS PARTLY PAID SHARES

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20
Q

shares at a premium

A

shares sold > NV
excess: Cr share prem

ALLOWED

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21
Q

stat rights of pre emption - what is the time period during which the offer of shares may be accepted?

A

21 days

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22
Q

The directors of a private company with one class of shares may be authorised by a special resolution of the company’s members to allot shares as if the statutory rights of pre-emption did not apply

T or F

A

true - exception to pre emption rules:
-bonus shares
-employee share schemes
-shares issued for non cash consideration
-ltd only = exclusions in the Articles
-ltd + plc = special resolution : can allot shares as if the stat rights of pre emption did not apply

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23
Q

share prem - what can and cant it be used for?

A

CANNOT
-dividend
-write off expenses re formation of Co
-write off expenses re issue of debentures

CAN
- write off expenses made in making those shares it has just issued
-allotted to members as a fully paid bonus share (cr share cap dr share prem)
-application of special rules re group reconstruction relief + merger relief

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24
Q

payment for shares - does it have to be sufficient?

A

YES! because : cannot issue shares at a discount

25
Q

payment of shares - which constitutes valid payment?
cash, goodwill, goods/property

A

ALL! rule : shares must be paid in money or money’s worth (includes goodwill and know-how), therefore non cash consideration of sufficient value is acceptable

26
Q

payment of shares - valuing assets for shares - ltd vs plc

A

ltd = directors’ valuation

plc = independent valuation

27
Q

payment of shares - additional rules for plc

A

-independent valuation (NOT directors valuation) for any payment other than in cash

-paid up front: share prem and 25% nominal value. remainder paid < 5 years

-shares taken by subcribers: paid up in cash

-shares cannot be paid for by an undertaking by someone to do work/perform services (too risky)

28
Q

what Co can amend articles of association to incorporate a provision to exclude the stat rights of pre emption?

A

ltd only - not plc

both: special resolution to overide pre emption right

29
Q

authority to allot shares : ordinary or special

A

ordinary

30
Q

transfer of shares - what forms? what time frame? UNLISTED SHARES

A

stock transfer form given to transferee by transferor alongside share certificate

sent to co for registration

< 2 months: register transfer or give notice or refusal with reasons

31
Q

transfer of shares - exception to transfer form/share cert

A

transferred by operation of the law

ie bankrupt member’s trustee or personal rep for decreased person becomes entitled to the shares

32
Q

transfer of shares - what forms? what time frame? LISTED SHARES

A

CREST system (paperless) = within 3 days

33
Q

share capital:
Portions has 100 £1 shares.
Issued 80.
Received 25p per share on application and has called on the holders for a further 15p

Share cap is =
Issued share cap is =
Called up share cap is =
Paid up share cap is =
Unpaid up share cap is =

A

Share cap is = £100
Issued share cap is = £80
Called up share cap is = £32 (15p + 25p)
Paid up share cap is = £20
Unpaid up share cap is = £12

34
Q

Capital maintenance - what reserves can dividends be paid out of?

A

distributable reserves

35
Q

capital maintenance - can shares be issued at a discount?

A

no!

36
Q

capital maintenance - can there be restrictions in reducing share capital?

A

yes : restrictions on:
-reducing share capital
-repurchasing own shares
-redeeming own shares

37
Q

capital maintenance - can share capital be used as working capital?

A

yes!

38
Q

reduction of share capital - why?

A

share capital > company’s needs (surplus cash)

net assets < share capital + this position is likely to be permanent

39
Q

reduction of share capital - how

A

-reduce liability on partly paid shares
ie £1 shares, 70p paid up - change to 70p shares, no more needs paying up

-reduce the amount of paid up share capital
ie £1 shares, £1 paid up - give back 30p, become 70p shares

40
Q

reduction of share capital - procedures: plc vs ltd

A

ltd
-special resolution 75%
-solvency statement signed by directors
-file resolution + solvency statement with registrar

plc = stricter
-special resolution 75%
-confirmed by court
-notice to creditors
-file resolution and court order with registrar

difference: solvency statement (directors) vs court confirmation/creditor noticeq

41
Q

purchase of own shares - which scenarios?

A

-complying with a court order
-surrender of shares in accordance with articles ie SH failed to pay up for their shares
-in accordance with CA2006
-acquisition of shares in a permitted reduction of share capital

42
Q

purchase of own shares - market purchase

A

-made on a recognise investment exchange
-authorised by resolution of the Co which specifies min/max price to be paid for a max number of shares to be reacquired

43
Q

purchase of own shares - off-market purchase

A

-not conducted through a recognised investment exchange
-authorised by a contract approved by a special resolution

44
Q

purchase of own shares: treatment
ltd vs plc

A

ltd = shares are cancelled
plc = hold shares in a treasury (pending reissue in the future)

45
Q

share repurchase - what happens if purchased out of company’s profits?

A

the amount by which share cap reduces is transferred to capital redemption reserve = restricted and can only be used to pay fully paid bonus shares

46
Q

what can capital redemption reserves be used for?

A

pay fully paid bonus shares

47
Q

redemption of shares are re

A

redeemable shares

48
Q

when can redeemable shares be issued?

A

when there are other share types already issued which are not redeemable!

49
Q

repurchase or redemption of shares - what funds can plc use?

A

-available profits
-proceeds of fresh share issue of shares made for the purpose of financing the purchase

50
Q

repurchase or redemption of shares - what funds can ltd use?

A

-available profits
-may also use capital IF: special resolution, statement of solvency (directors) supported by auditors’ report, co has publicised the repurchase to creditors, payment made with 5-7 weeks of resolution

51
Q

how can a co increase or alter share capital?

A

-issue more shares

-subdivide/consolidate shares (ordinary resolution)
ie 1x£1 share = 2x 50p shares

-redenomination (change currency)- 10% rounding adjustment!

52
Q

financial assistance for purchasing shares : ltd vs plc

A

ltd = allowed

plc = prohibited UNLESS
-purpose of assistance is for something other than proposed acquisition
-giving of assistance is incidental part of a larger purppse

ALLOWED FINANCIAL ASSISTANCE TRANSACTIONS:
-employee share scheme (NOT DIRECTORS)
-lending of money is part of the business of the Co ie bank

53
Q

which transactions are plc allowed to do re financial assistance of shares?

A

normally prohibited
these are allowed:
-employee share schemes (NOT DIRECTORS)
-lending money is part of business of Co ie bank

54
Q

distrubutable or non distributable?
share premium

A

non dis

55
Q

distrubutable or non distributable?
retained earnings

A

dis

56
Q

distrubutable or non distributable?
capital redemption reserve

A

non dis

57
Q

distrubutable or non distributable?
revaluation reserve

A

non dis

58
Q

define : distributable reserve

A

accumulated realised profits less accumulated realised losses (retained earnings)

59
Q

can directors withhold a dividend?

A

yes - they can withhold profits and not recommend a dividend

LAW (22 decks)

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