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Company Compliance & Administration > Chapter 16 - SHARES > Flashcards

Chapter 16 - SHARES Flashcards

1
Q

Which organisations have oversight of the UK financial services industry?

A

FCA
PRA
The Treasury
Bank of England
Financial Policy Committee

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2
Q

What is the name of the process through which the FCA supervises the employment of financial services professionals?

A

Senior Managers and Certification Regime

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3
Q

Where a firm wishes to employ someone to carry out specified senior management functions, they must seek approval from the _____ in advance. These senior management functions are broadly divided into customer functions and significant influence functions.

A

FCA

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4
Q

A debenture is defined in CA2006 s. 738 as debenture stock, bonds and any other securities of the company, whether or not constituting a charge on the assets of the company. In effect, a debenture is a document that creates or
acknowledges a _______.

A

Debt

Public companies normally issue their debentures in the form of debenture stock secured on the company’s assets and constituted by a trust deed between the company and a corporate trustee, e.g. an insurance company or a trust company.

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5
Q

What is the difference between allotted and issued share capital?

A

Allotted shares are those where the investor has acquired an irrevocable right to be registered as the holder of the shares. Issued shares are those entered in the register of members and for which a share certificate or CREST credit has been issued.

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6
Q

What is a company’s equity share capital?

A

These are the ordinary voting share capital

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7
Q

What are the features of equity (funding raised through shares issued)

Example
Reflects
Term
Status of holders
Risk level
Return type
Nature of return
Collateral requirement
Security requirement

A

Example - Shares
Reflects - ownership
Term - long
Status of holders - ownership
Risk level - high
Return type - dividends and capital gain
Nature of return - variable + irregular
Collateral requirement - none
Security requirement - none

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8
Q

What are the features of debt (funding owed by the company to institutions)

Example
Reflects
Term
Status of holders
Risk level
Return type
Nature of return
Collateral requirement
Security requirement

A

Example - term loan, debentures, bonds, loan notes
Reflects - liability
Term - short term
Status of holders - lenders
Risk level - lower
Return type - interest
Nature of return - regular and fixed
Collateral requirement - yes
Security requirement - usually

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9
Q

What is alloted capital?

A

The shares that the company has alloted - shares are taken as alloted when a person acquires the UNCONDITIONAL right to be included in the company’s register of members (accepted as once the contract of allotment is completed and acceptance is notified to the applicant).

Also includes shares taken by subscribers on incorporation.

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10
Q

What is issued shares? Is there a statutory definition of this?

A

Shares that have been entered into the register of members, and a share certificate or CREST credit has been issued.

No statutory definition.

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11
Q

What is issued capital?

A

The total capital that has been issued and taken up by the members - expressed by the aggregate nominal value of the shares (TOTAL).

E.g. £1 per share X 250 shares = £250 issued capital

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12
Q

Can a company increase its issued share capital?

A

Yes, provided there are no restrictions in the articles e.g. authorised shares (abolished by the Act)

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13
Q

What is paid up capital?

A

nominal amounts that have been paid up against the company’s issued capital.

Full paid (same as issued capital)
Partly paid (balance due at some point in future)

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14
Q

What is called up capital?

A

Amount equal to the aggregate amount of calls made on shares (whether paid or not).

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15
Q

What is equity capital?

A

Issued capital EXCLUDING any shares that have the right to participate in a dividend or return of capital (up to specified amount).

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16
Q

According to the Act, how can a company alter its share capital?

Name 4 of 9 possible alterations.

A

increase by alloting new shares
subdivide or consolidate
reconvert stock (what you’re investing in) into shares (amount invested)
redeem shares
purchase own shares
redominate share capital
cancel shares
reduce share capital

No other alterations are permitted.

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17
Q

On debt capital, what implied powers to directors have? What is this subject to?

A

Power to borrow money on behalf of the company under their general powers to manage the business - subject to the Act and the Articles

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18
Q

What types of debt capital are there? (Three)

A

loan notes
bonds
redeemable shares

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19
Q

What are debentures?

A

a document that creates a debt or acknowledges a debt

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20
Q

Are debentures transferable on stock transfer forms? What are they exempt from?

A

Yes; stamp duty

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21
Q

How do public companies normally issue their debentures?

Who is a trustee?

A

debenture stock secured by assets; nd constituted by a trust deed between the company and a trustee

insurance company or trust company

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22
Q

What is loan stock? How is it usually constituted?

A

High risk / high interest loan - shares of common or preferred stock that are used as collateral to secure a loan from another party.

Usually carries with it the requirement to offer options - e.g. the right to convert the stock into equity shares in future.

Constituted by a trust deed.

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23
Q

What is a loan stock holder entitled to be supplied with for a fee?

A

a copy of the trust deed (which secures the debt)

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24
Q

What is convertible loan stock?

What requirements do companies have to give stockholders?

A

Loan stock including the provision for the stock to be converted into equity shares, at ratios determined at the time of the issue of the stock.

Companies must give the stockholders notice of their right to convert into equity shares every year.

PROPER PROCEDURES MUST BE FOLLOWED by Co Sec / Share Registrar

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25
Q

When issuing new shares, it is important that there is sufficient current _____________ for the directors to approve the issue.

A

Authority

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26
Q

Once a company has issued shares, what are the four limited circumstances under which they can be returned??

A

Purchase by company
redemption
reduction of capital
forfeiture

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27
Q

Can directors of a private company with only ordinary voting shares allot shares without additional member consent? What is this subject to?

What is the maximum amount of time that this authority to issue additional shares can be granted?

Can the authority be revoked / varied / renewed, even if decided by special resolution? Bh what means of resolution?

Within what timeframe must the authority be filed with the registrar?

A

Yes, subject to Constitution

5 years

Yes - by ordinary resolution (simply majority)

15 days

28
Q

What are pre-emption rights?

A

Offer of new issues to existing shareholders before non-shareholders

A pre-emption right is a right that a shareholder may benefit from on an issue of new shares or a transfer of shares in a company. Generally speaking, it gives the shareholder the right to purchase the shares being issued or transferred in proportion to their existing shareholding before a third party can receive them.

29
Q

Can pre-emption rights be waived? How?

Who/what shares are excluded? (3)

A

Yes, by special resolution at last AGM or general meeting

  • subscribers to the memorandum
  • shares that carry rights to particpate only up to a specified amount in a dividend distribution
  • shares acquired through employee share scheme
30
Q

What takes precedence on pre-emption rights? Articles or Act?

A

Company’s articles

31
Q

What is the timeframe for the offer of pre-emption rights to be taken up by existing shareholders?

A

14 days

32
Q

Where listed companies seek to waive pre-emption rights by special resolution at their AGM each year, what is the common percentage for which they waive these rights (as a % of total issued share capital)?

A

5%

33
Q

What are the 6 steps in the checklist for the allotment of shares? This assume that the appropriate authoriuty has been obtained by directors un order to offer the new allotment.

A
  1. Make application form available to potential subscribers (this serves to demonstrate agreement to become a member (CA2006) and allows the company to collect money and enter them into the register of members).
  2. Subscriber fills forms, signs, makes payment
  3. Company checks and acknowledges form and payment
  4. Directors APPROVE applications at Board meeting
  5. Issue share certificates within 2 months (note publicly traded companies can hold in CREST instead).
  6. File SH01 (return of allotments) with registrar. (Note if fully paid up, no distinguishing numbers required.)
34
Q

What main factor should be considered for directors to have the authority to issue an allotment of shares? How do directors need to dain the authority?

A

Pre-emption rights are not infringed

If they are, member resolution or written resolution required.

35
Q

What are the two ways in which shares may be paid for?

A

in money (cash, cheque, transfer, release of company liability for a liquidated sum)

Or

by way of capitalisation of the company’s existing reserves

36
Q

Is the allotment of shares at a discount / in exchange for an undertaking of services allowed?

A

No, prohibited (CA2006)

37
Q

Can nil or partly paid shares be issued?

A

No (Model articles)

38
Q

Can shares be allotted for non-cash consideration? e.g when the company acquires an asset, payment is made via an issue of shares

A

Public company - NO, unless the consideration has been independently valued within the last 6 months, eg by auditor

Private company - Yes, and directors can apply their own valuation

39
Q

What are the three exemptions to shares allowing to be allotted for non cash?

A

Takeover by way of share exchange

Merger in exchange for all assets and liabilities

capitalisation issue - reserves or P&L

40
Q

Once an independent report valuing the shares allotted for non cash consideration has been provided by the auditor, what must the company do?

A

File report AND a formal contract/agreement between company and allottee with registrar, at the same time form SH01 is filed.

41
Q

What type of company can provide financial assistance (eg gift, by guarantee, loan agreement) for the purchase of its own shares or the shares of its holding company? CA2006

A

A private company, unless the holding company of the private company is public.

Public company generally prohibited, unless out of distibutable profit, purposes of employee share scheme, loan to an employee (but not director). Assets CANNOT be reduced as a result.

42
Q

Where are share premiums (the amounts over and above the nominal value of the shares) credited (CA 2006)?

Share premiums can then be used for bonus shares / writing off expenses or commission paid.

A

Special capital reserve (share premium account).

43
Q

Define ‘call on shares’. If the Act does not provide a provision for the call on shares, where is this procedure required to be outlined?

A

A call from directors to members to pay any amounts due on partly paid shares.

Must be outlined in the company’s articles

44
Q

What are the 5 key steps for a call on shares, as outlined in the Model Articles (no provision in Act)?

A
  1. directors meeting + approval
  2. Co Sec prepare and issue call notices to members - must be addressed to registered members and include the amount outstanding and the amount being called. Payment due date at least 14 days from call notice date.

Co Sec to update register of members and track payments.

  1. send reminder letters for non payment (penalties can include forfeiture if provided in the Articles)
  2. members to return share certificates either for endorsement or for the issue of new certificate
  3. Co Sec to amend register of members
45
Q

Though rarely exercise, where are the provisions for the forfeiture of shares contained?

A

The Company’s Articles - not the Act.

46
Q

In general, companies may only purchase their own shares out of _____________ ____________ or the proceeds of a new ________ of _________.

A

Distributable profit

New issue of shares

47
Q

Where the Articles contain the necessary authority for a company to purchase its own shares, what is also recommended?

A

Tax advice and clearance should be sought

48
Q

What is capital?

A

company’s financial assets that are available to spend

49
Q

What is equity?

A

Equity represents the total amount of money a business owner or shareholder would receive if they liquidated all their assets and paid off the company’s debt

50
Q

Generally, what approvals / resolutions must be sought for a company to acquire its own shares?

A

Directors’ resolution

Special resolution by members (14 clear days)
75% majority
Or full written resolution

51
Q

If a call on shares is not paid what is the ultimate sanction available to the directors?

A

Forfeiture

52
Q

If directors have full authority to issue additional shares what protection do existing members have from having their holding diluted?

A

Pre-emption rights on the allotment of new shares

53
Q

When payable (£1000 +), what is the rate of stamp duty?

A

0.5% of the value of the consideration

54
Q

What are the six key services provided by a share registrar (mostly engaged by quoted companies with thousands of SHs/members or more)

A

Share issuance and transfer

Record keeping (ownership of shares)

Registration of shareholding (changes of ownership)

Payment agent

Liaison between company and SHs

Meeting management incl proxy management and scrutineering

55
Q

Where is authority on the transfer of shares set out?

A

Articles

56
Q

What comfort does certification of a stock transfer form give to the purchaser of the shares?

A

Confirms that the holder does hold sufficient shares to complete the transfer and that the company, or share registrar, is holding the share certificate

57
Q

How are the majority of share transfers handled for companies trading publicly? How long until the transfer must be settled?

A

Via CREST - T+1 basis (settlement on day following booking)

58
Q

What are the 6 key steps for a transfer of shares?

A
  1. transferor to complete and sign stock transfer form. Signature only required by transferee if partly paid
  2. HM R & C to stamp form unless exempt from stamp duty
  3. transfer form and share certificate to be provided to the company for registration
  4. check validity
  5. approval of transfer by board of directors (also approval to issue share certificate to transferee)
  6. enter details into register of members within TWO months
59
Q

When does the transmission of shares usually apply?

A

upon death or bankruptcy of shareholder or corporate shareholder’s company winding up

60
Q

What 2 step procedure relates to the event of the death of a shareholder?

A
  1. notification provided to company; company to update register of members to note member as deceased
  2. grant of representation provided to company, along with request for shares to be registered in the name of the beneficiary (stock transfer form not required)
61
Q

In the case of death of one shareholder within a joint shareholding, who has the powers to deal with the shareholding?

A

The surviving joint shareholder

62
Q

Whilst proof of membership is provided in the register of members, what provides prima facie evidence as to the title of the shares?

A

The share certificate

63
Q

What 5 pieces of basic information is listed on the share certificate?

A

certificate number
name and registered number of issuing company
name of registered holder/s
number and decription of shares incl paid up
date

64
Q

Where profit is available, and subject to any restrictions in the articles, the payment of cash dividends are at the discretion of who?

A

The directors

65
Q

Listed companies should make an announcement of the decision to declare a dividend, as well as a timetable relating to the following. Define each.

announcement date
ex-dividend date
record date
payment date

A

announcement date - announcement of dividend (same day as director decision - board meeting)

ex-dividend date - trading date on and after which any transfer of shares does not include a right to the dividend

record date - date of calculation of dividend

payment date - date of payment of dividend

66
Q

What are scrip dividends?

Where must this authority be provided?

A

where a member elects to receive dividends by the issue of fully paid shares in lieu of cash dividends

Authority must be contained in the company’s articles

67
Q

Scrip dividends and dividend reinvestment schemes exchange the cash dividend for what?

A

Fully paid shares

Company Compliance & Administration (16 decks)

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