Capital And Financing Flashcards
What are the ways that a company can raise capital?
Issuing Shares
Taking out a loan
What happens when someone buys shares in a company?
Rights - To Vote, to Attend meetings - as set out in the articles of association
Obligations - To invest all unpaid share capital
Interest - Amount of company owned = Number of shares owned/total shares.
What are the two main types of shares?
Preference
ordinary (equity)
What are the key features of preference shares?
Give no or restricted voting rights
Dividends are fixed, normally paid in priority and are cumulative.
When liquidating/winding up - right for capital to be repaid first.
Cannot receive any surplus funds.
What are the key features of ordinary (equity) shares?
Have full voting rights.
Dividends are not fixed and will be paid after preference shares.
Capital will be repaid only after capital shares but can receive share surplus.
What is meant by class rights?
special rights attached to each type of share. can be varied but may have a procedure specified in the articles. If a procedure is specified it must be followed. If no procedure specified - variation needs a special resolution or written consent of 75fi in nominal value of the class of share.
What is minority protection in relation to variation of class rights?
Set outing S.633 of CA06
Holders of minimum of 15% of affected class of shares object.
May apply to courts within 21 days
And must prove variation is unfairly prejudiced:
1. Variation affects value, enjoyment or power - courts will allow variation.
2. Variation changes the rights them selves - courts will cancel the variation.
What is share capital?
this is the authorised capital of the company - and will be the total number of shares X their nominal value.
What are issued shares?
Shares that have been sold.
It will follow that unissued shares are shares that have not been sold.
% paid up?
% of nominal share value share holders have paid to the company.
% called up?
% of nominal share value called up but not yet paid.
% uncalled?
% of nominal value the company has not yet requested.
What are the different values of shares?
Market Value - What the market is willing to pay, will fluctuate
Nominal Value - value share is held at in accounts, maximum liability to the shareholder.
Share premium - Excess paid over nominal value.
What other issues of share might occur?
Bonus issue - Uses reserves to issue fully paid shares to existing shareholders. This does not raise additional share capital.
Rights issue - New shares offered in proportion to existing shareholding at a discount to market value, but not nominal value. Raises additional capital.
What are pre- emption rights?
Right of first refusal - New share issue must be offered to existing shareholders first.
* For ordinary shares and must be cash paid.
21 days to accept offer
Can be dis applied by provision in articles or special resolution.
How might a directors authority to allot ordinary shares be given?
May be in the articles or
Given by ordinary resolution.
Must state:
The maximum number of shares to be allowed
The expiry date of the authority.
Note ;
Shares cannot be issued at a discount to nominal value, the issue will still be valid but the shareholder is liable to the company for the discount + interest.
Can shares be issued at a premium?
Yes - the premium received must be credited to the share premium account. Can only be used for: Writing off related expenses Writing off commission Issuing Bonus shares.
What is capital maintenance?
In a Ltd company the Capital is regarded as a buffer fund.
Companies cannot reduce capital by returning it to it’s members
Members cannot withdraw their capital from the company.
How can companies reduce their share capital?
Reducing or cancelling liability on partly paid shares
Returning capital in excess of the companies needs
Cancel paid up capital which is no longer represented by the companies assets.
What are treasury shares?
Created when a company purchases it’s own shares from distributable profits - up to 10% of shares can be held this way.
These can be shares purchased back off share holders.
What a distributions?
Dividends which should only be paid if rules are met.
Per the model articles this is:
When Directors recommend payment of a dividend.
General meeting declares the dividend by passing an ordinary resolution.
the amount paid cannot exceed the recommendation an can only be paid from distributable profits (not reserves)
Note - a public company can only declare a reserve if the distribution will not result in net assets being less than aggregate of called up share capital and undistributable reserves.
When and from who can a company recover an unlawful dividend?
From Shareholders - who knew/had reasonable grounds to know that the dividend was unlawful.
From any director - unless they can show reasonable care exercised in relying on properly prepared accounts.
From the auditors - if the dividend was paid based on their erroneous accounts.
What are long term loans also referred to as?
Debentures - basically a document confirming indebtedness.
What are the benefits of loans over raising share capital?
No authority required from a general meeting
Carry no votes so do not affect control of the company.
Interest is chargeable against profit before tax
May be cheaper to service than shares.
No restriction on issuing at a discount or on redemption.
