Chapter 3 - Company Finances and New Issues

Question 1

List the rights of ordinary shareholders

Answer 1

• Share in the profits of the company
• Transfer their shares (plcs)
• Receive notice of meetings (AGMs and EGMs)
• Attend and vote at AGMs and EGMs
• Appoint a proxy to attend AGMs and EGMs on their
  behalf
• Receive annual reports and accounts

* Pre-emption - first choice in participating in new 
  share issues (rights issues)

• Share equally in any residual assets of the company
  after liabilities have been paid in the
  event of the company being liquidated

Question 2

How do ordinary shares differ from preference shares

Answer 2

Ordinary Shares:

Votes - Voting Rights

Dividends - Variable. Paid once preference share dividends are paid.

Liquidation - Rank last. Share in any surplus cash left, after all other dividends and debt

Preference Shares:

Votes - None

Dividends - Fixed (% of nominal value) - usually cumulative (i.e all preference dividend arrears must be paid first)

Liquidation - Rank second to last and only receive the nominal

Question 3

Which entity sets out the requirements for companies wishing to obtain a listing on the London Stock Exchange and what are the main requirements?

Answer 3

The entity is the UK Listing Authority (UKLA).
The requirements are:-

* Incorporation - The Company must be a UK public 
  limited company (plc)

• Accounts - The Company must file/publish three
  years audited accounts the latest set of
  which are less than six months old
• Track record - The Company must have an
  independent trading and revenue earning record
  covering a three year period
• The directors - must possess the appropriate
  collective experience to run all areas of the
  business
• Working capital requirement - the company must
  demonstrate the availability of sufficient
  working capital for the next 12 months
• Market capitalisation - the company must raise a
  minimum of £700,000

Question 4

Describe the three main participants in the secondary markets.

Answer 4

• Investors - (individuals or institutional), who buy and
  sell securities for their own purposes.
• Brokers - who act on behalf of investors and
  themselves (deal for own account). They may
  hold shares for investors in their nominee accounts.
• Market makers - who quote buy and selling prices for
  the securities in which they trade.