Capital, Shares and Shareholding Flashcards
What is Loan Capital?
Money borrowed from whatever source to provide working capital for the business.
What is Share Capital?
Shares are issued in consideration of the payment of money or money’s worth to the company.
What is the limited liability of a shareholder?
The amount of capital introduced by a member.
Why do people invest in shares?
The increase in the value of the shares if the company is successful
The payment of annual dividends to members
What is the nominal value?
It is simply the value at which the company issues the initial shares. It is not related to the actual value of the shares.
What is issued share capital?
Nominal value of shares actually issued by the company - no limit to this unless there is a restriction in the articles.
What is paid up capital?
The amount of issued share capital paid for by the members.
What are ordinary shares?
They carry the right to vote and attend general meetings.
What are preference shares?
Do not carry voting rights but have the right to payment of a fixed dividend in priority to ordinary members. If no dividend is declared, it accrues to the next year.
What are redeemable shares?
Shares which can or must be bought back at predetermined times by the option of the company or shareholder.
Features of Debt investment:
No right to participate in management of the company.
Fixed rate of return by way of interest repayments.
If the value decreases, right to return still exists.
If loan is secured, likely to be safe and capital recoverable
Can sell to third party
No gain from company increasing in value
Features of Equity investment in quoted company:
Usually small so no control
Dividends more certain
Ready market for sale
Prospect of shares increasing in value
Features of Equity investment in private company:
More likely to have control or involvement in the company
Dividends not guaranteed
Share in increased value of company
More restricted market
Describe pre-emption rights:
Any new shares issued for cash (not anything else) must first be offered to existing members in proportion to their existing holdings.
For private companies, they can pass a special resolution for this to not apply to the company.
Transfer of Shares:
Seller signs stock transfer form and combines it with the share certificate and gives it to the buyer. Buyer does not need to sign unless share are only part paid.
Buyer pays the price
Buyer must pay stamp duty of 0.5% rounded up to nearest £5 (unless it is a gift)
Buyer sends STF to company along with original share certificate
Directors approve the registration of the transfer and issue new share certificate
Details are noted in Register of Members and sent to Registrar of Companies in annual return.
