c9 general Flashcards
if a co’s constitution does not specify any distinction between its shares, it is assumed that they are ordinary shares
true
preference vs ordinary : dividends
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
preference shares - undeclared dividends - are they entitled?
undeclared dividends cease to be payable on winding up UNLESS the dividend has been declared but not yet paid when liquidation commences
preference vs ordinary : voting rights
ordinary - yes
preference - yes BUT commonly disapplied in the articles
preference vs ordinary : preemption rights
preference - no
ordinary - yes
preference vs ordinary : right to share in capital/share surplus profits on winding up
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
preference vs ordinary : right to participate in a rights issue
preference - no
ordinary - yes
In the absence of any express provision in the company’s articles of association, how are class rights varied?
special resolution of the relevant class (75%)
redeemable shares - ltd vs plc - when can they be issued?
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
what are class rights?
rights attached to each class of shares. a notice outlining any variation must be given to registrar within 1 month of variation
how can you vary class rights?
special resolution
class rights - minority protection
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!!!
allotment of shares : ltd, 1 class
directors may allot shares unless articles prohibit him from doing so
allotment of shares: ltd w/ >1 share class, plc
-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
rights issue
additional shares offered to ordinary SHs (not preference) in ratio to existing shares. members can either: accept or sell their rights
maintain their SH %
bonus issue
free shares given to existing shareholders in proportion to their SHings. capitalisation of reserves (cr share cap dr share prem)
define : rights of preemption
ordinary vs preference
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
exceptions to pre emptions rights :
bonus shares
shares issued for non cash consideration
employee share schemes
exclusions in the articles (PRIVATE ONLY) or by special resolution
shares at a discount
shares sold < NV = PROHIBITED
NOT THE SAME AS PARTLY PAID SHARES
shares at a premium
shares sold > NV
excess: Cr share prem
ALLOWED
stat rights of pre emption - what is the time period during which the offer of shares may be accepted?
21 days
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
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
share prem - what can and cant it be used for?
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
payment for shares - does it have to be sufficient?
YES! because : cannot issue shares at a discount
payment of shares - which constitutes valid payment?
cash, goodwill, goods/property
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
payment of shares - valuing assets for shares - ltd vs plc
ltd = directors’ valuation
plc = independent valuation
payment of shares - additional rules for plc
-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)
what Co can amend articles of association to incorporate a provision to exclude the stat rights of pre emption?
ltd only - not plc
both: special resolution to overide pre emption right
authority to allot shares : ordinary or special
ordinary
transfer of shares - what forms? what time frame? UNLISTED SHARES
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
transfer of shares - exception to transfer form/share cert
transferred by operation of the law
ie bankrupt member’s trustee or personal rep for decreased person becomes entitled to the shares
transfer of shares - what forms? what time frame? LISTED SHARES
CREST system (paperless) = within 3 days
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 =
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
Capital maintenance - what reserves can dividends be paid out of?
distributable reserves
capital maintenance - can shares be issued at a discount?
no!
capital maintenance - can there be restrictions in reducing share capital?
yes : restrictions on:
-reducing share capital
-repurchasing own shares
-redeeming own shares
capital maintenance - can share capital be used as working capital?
yes!
reduction of share capital - why?
share capital > company’s needs (surplus cash)
net assets < share capital + this position is likely to be permanent
reduction of share capital - how
-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
reduction of share capital - procedures: plc vs ltd
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
purchase of own shares - which scenarios?
-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
purchase of own shares - market purchase
-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
purchase of own shares - off-market purchase
-not conducted through a recognised investment exchange
-authorised by a contract approved by a special resolution
purchase of own shares: treatment
ltd vs plc
ltd = shares are cancelled
plc = hold shares in a treasury (pending reissue in the future)
share repurchase - what happens if purchased out of company’s profits?
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
what can capital redemption reserves be used for?
pay fully paid bonus shares
redemption of shares are re
redeemable shares
when can redeemable shares be issued?
when there are other share types already issued which are not redeemable!
repurchase or redemption of shares - what funds can plc use?
-available profits
-proceeds of fresh share issue of shares made for the purpose of financing the purchase
repurchase or redemption of shares - what funds can ltd use?
-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
how can a co increase or alter share capital?
-issue more shares
-subdivide/consolidate shares (ordinary resolution)
ie 1x£1 share = 2x 50p shares
-redenomination (change currency)- 10% rounding adjustment!
financial assistance for purchasing shares : ltd vs plc
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
which transactions are plc allowed to do re financial assistance of shares?
normally prohibited
these are allowed:
-employee share schemes (NOT DIRECTORS)
-lending money is part of business of Co ie bank
distrubutable or non distributable?
share premium
non dis
distrubutable or non distributable?
retained earnings
dis
distrubutable or non distributable?
capital redemption reserve
non dis
distrubutable or non distributable?
revaluation reserve
non dis
define : distributable reserve
accumulated realised profits less accumulated realised losses (retained earnings)
can directors withhold a dividend?
yes - they can withhold profits and not recommend a dividend
