Chapter 12: Shares and Share Capital

Question 1

How is a share defined?

Answer 1

A fixed and indivisible section of the capital of a company, a part allotted or owned, a division, a section or portion.

Question 2

Which model articles allow for the issue of redeemable shares?

Answer 2

Private Article 22

Public Article 43

Question 3

What are founder shares?

Answer 3

Shares issued to the founders/promoters of a company, which often carry enhanced rights.

Question 4

What are deferred shares?

Answer 4

Shares with very few rights, but usually have the right of repayment of their capital value at winding up.

Question 5

What is issued capital?

Answer 5

The company’s total capital issued and taken up by members

Question 6

What is paid up capital?

Answer 6

Total capital paid for.

Question 7

What is a share premium?

Answer 7

The difference between the share price and the nominal value.

Question 8

For what purposes are the use of share capital restricted?

Answer 8

• paying up unissued shares to be allotted to members as fully paid shares
• writing off the expense and commissions paid by the company on an issue of those shares.

Question 9

What steps should be taken by the CoSec during an allotment?

Answer 9

1 Check directors have authority to authorise allotment
2 Check the allotment is in proportion to member’s existing holding
3 Send allotment application forms to those applying for shares
4 Process forms
4 Board resolves to allot shares
5 Send share certificates
6 File forms at companies house

Question 10

Can a company permanently disallow preemption rights?

Answer 10

A private company can. Public companies may only temporarily disallow.

Question 11

Listed companies must send shareholders an explanation of any resolution to grant authority to allot. What must the explanation include?

Answer 11

• statement of the max amount of shares the directors will be able to allot
• statement as to whether the directors have the present intention to exercise the authority, and why
• statement on when the authority will lapse.

Question 12

Which forum must be used to notify the registrar of an allotment?

Answer 12

SH01

Question 13

Can shares be allotted at a discount?

Answer 13

No

Question 14

A valuation report is required for any non-cash consideration for shares. What must the report state?

Answer 14

• nominal value of the shares
• amount of premium payable
• the consideration and the method used to value it
• the amount paid up using the consideration

Question 15

What is a rights issue?

Answer 15

An issue of shares to existing shareholders pro-rata based on their existing holdings.

Question 16

What is the purpose of a rights issue?

Answer 16

To obtain additional funding from shareholders.

Question 17

What are the key steps in a rights issue?

Answer 17

• check directors have authority to allot shares, or seek authority from the members
• directors resolve to increase share capital by rights issue
• issue provisional allotment letters
• issue a prospectus (if listed)
• issue letters of renunciation if shareholders can renounce to third parties
• after closing date, directors resolve to allot shares taken up
• update register of members
• prepare appropriation certificates and issue
• file SH01 with companies house within one month
• file copies of resolutions within 15 days

Question 18

For how long must a rights issue be kept open to shareholders? (ca s 562)

Answer 18

At least 14 days

Question 19

What options does a shareholder in a rights issue have available?

Answer 19

• agree to subscribe to new shares
• renounce and sell shares
• do nothing, and if the shares are sold above market value, the company will pay the shareholder the difference.

Question 20

What additional document must a listed company prepare in a rights issue?

Answer 20

A prospectus

Question 21

Why are rights issue shares usually offered at below market value?

Answer 21

To encourage uptake

Question 22

What is meant by an “open offer” share issue?

Answer 22

Existing holders are invited to subscribe but the right cannot be sold.

Question 23

What is a “bonus issue” (aka capitalisation)?

Answer 23

Directors arrange fully paid shares of the same class to be allotted free of charge

Question 24

What is an “exchange” or “conversion”?

Answer 24

New securities are listed as a result of existing securities being exchanged for, or converted to, new securities.