Chapter 12: Shares and Share Capital Flashcards
How is a share defined?
A fixed and indivisible section of the capital of a company, a part allotted or owned, a division, a section or portion.
Which model articles allow for the issue of redeemable shares?
Private Article 22
Public Article 43
What are founder shares?
Shares issued to the founders/promoters of a company, which often carry enhanced rights.
What are deferred shares?
Shares with very few rights, but usually have the right of repayment of their capital value at winding up.
What is issued capital?
The company’s total capital issued and taken up by members
What is paid up capital?
Total capital paid for.
What is a share premium?
The difference between the share price and the nominal value.
For what purposes are the use of share capital restricted?
- 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.
What steps should be taken by the CoSec during an allotment?
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
Can a company permanently disallow preemption rights?
A private company can. Public companies may only temporarily disallow.
Listed companies must send shareholders an explanation of any resolution to grant authority to allot. What must the explanation include?
- 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.
Which forum must be used to notify the registrar of an allotment?
SH01
Can shares be allotted at a discount?
No
A valuation report is required for any non-cash consideration for shares. What must the report state?
- 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
What is a rights issue?
An issue of shares to existing shareholders pro-rata based on their existing holdings.
What is the purpose of a rights issue?
To obtain additional funding from shareholders.
What are the key steps in a rights issue?
- 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
For how long must a rights issue be kept open to shareholders? (ca s 562)
At least 14 days
What options does a shareholder in a rights issue have available?
- 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.
What additional document must a listed company prepare in a rights issue?
A prospectus
Why are rights issue shares usually offered at below market value?
To encourage uptake
What is meant by an “open offer” share issue?
Existing holders are invited to subscribe but the right cannot be sold.
What is a “bonus issue” (aka capitalisation)?
Directors arrange fully paid shares of the same class to be allotted free of charge
What is an “exchange” or “conversion”?
New securities are listed as a result of existing securities being exchanged for, or converted to, new securities.
