Chapter 5.2 - Introduction+ consideration prior to borrowing

Question 1

what are the two main types of debt finance? describe each

Answer 1

loans and debt securities
loan- business borrows money from a bank or another lender eg bank overdraft, term loan, revolving credit facility
debt securities are IOU’s issued by companies to investors in return for a cash payment, repaid by company at agreed future date.

Question 2

what considerations should you make prior to borrowing?

Answer 2

• check that you are allowed to borrow under constitution. MA does not restrict borrowing
• if company incorporated before 1 oct 2009, check company’s memorandum

Question 3

what happens do if there are restrictions on borrowing money?

Answer 3

shareholders will need to pass a special resolution under s21 CA 2006 to change articles (same with memorandum)

Question 4

what authority under the model articles does a director have to act on behalf of the company?

Answer 4

MA 3

Question 5

what considerations should a partnership Make before borrowing money

Answer 5

the partner should check there is no restriction on doing so in their partnership agreement. if there is partners can change by unanimous consent