Chapter 7 - Companies: finance Flashcards
When do shares have class rights?
Shares which have certain rights not enjoyed by other shares in the company are grouped in a class and are said to have class rights.
How must shares be alloted?
Generally speaking, shares may be allotted provided authority is given in the articles or by ordinary resolution and they must first be offered to existing shareholders in proportion to their existing holdings.
Can shares be issued at a premium or discount?
Shares must be paid for in money or money’s worth. They can be issued at a premium but not, as a general rule, at a discount.
Are shares generally freely transferable?
Shares are generally freely transferable and may be transferred in a paper or paperless format.
What is a share?
A share is a transferable form of personal property, carrying rights and obligations, by which the interest of a member of a company limited by shares is measured.
Do ordinary shareholders have statutory pre-emption rights?
Yes.
All ordinary shareholders have statutory pre-emption rights.
When the company is wound up, do ordinary shareholders have an automatic right to have their capital repaid?
Yes.
Ordinary shareholders have an automatic right to have their capital repaid and to participate in the distribution of profit, when the company is wound up, provided the company has surplus assets once creditors have been satisfied.
When the company is wound up, do preference shareholders have a right to have their capital repaid?
Preference shareholders also have a right to have their capital repaid on a winding up (unless the articles provide otherwise).
If there is a surplus after repayment of capital, ordinary and preference shareholders will share equally.
Where preference shares are expressed to carry a priority or preferential right to return of capital, the amount paid up on each preference share is to be repaid before anything is repaid to ordinary shareholders.
Do preference shareholders have statutory pre-emption rights?
Preference shareholders do not have rights of pre-emption unless they are specifically conferred by the company’s articles of association or terms of issue of the shares.
What is a redeemable share?
A redeemable share is one which is issued on terms that it can be bought back by the company at the option of the company or the shareholder.
How may the rights attached to a class of shares be varied?
The rights attached to a class of shares can be varied only in accordance with the articles or according to the procedure set out in the Act by a special resolution of the class or written consent from at least 75% in nominal value of the issued shares of that class.
The holders of at least 15% of the issued shares of the class in question (who did not consent or vote in favour of the variation) may apply to the court, within 21 days, to have the variation cancelled as ‘unfairly prejudicial’.
A class right is varied only if the right itself is altered. An alteration which affects how the right ‘operates’, but which leaves the right unchanged is not a variation.
When are shares alloted?
Shares are allotted when a person acquires the unconditional right to be included in the company’s register of members in respect of those shares
When are shares issued?
Shares are generally said to be issued once the allottee receives a letter of allotment or share certificate as evidence of their title.
On what basis may the directors of any company allot shares?
1) There must be authority given either by the articles or by ordinary resolution. It can be general or specific, conditional or unconditional.
2. The authority must state the maximum number of shares to be allotted and state the expiry date for the authority, which must be not more than five years after the authority.
The authority may be given, varied, renewed or removed by an ordinary resolution, even if this constitutes an alteration of the articles (which would normally require a special resolution).
What are pre-emption rights?
The rights of existing company shareholders to be offered new equity shares issued by the company pro rata to their existing holding of that class of shares are called pre-emption rights.
The offer must be made in writing or in electronic form and must specify a period of not less than 21 days during which the offer may be accepted.
What happens if equity securities are issued in breach of the rules regarding pre-emption rights?
If equity securities are allotted in breach of these rules the members to whom the offer should have been made may, within two years from delivery of the return of allotment, recover compensation for their loss, if any, from those in default
The allotment will generally be valid.
In what cases do the pre-emption provisions not apply?
Exceptions - bonus shares, securities to be wholly or partly paid up otherwise than in cash, securities relating to an employees’ share scheme
Exclusions - A private company may exclude all or any of the provisions in its articles, either generally or in relation to allotments of a particular description
Disapplication - Directors of a private company with only one class of shares may disregard the provisions by either the articles or special resolution.
In which exceptional circumstance may a company pay a commission to someone who agrees to subscribe or to procure subscription for shares?
There is one exception, however, which entitles a company to pay a commission to someone who agrees to subscribe or to procure subscriptions for shares, provided the company’s articles contain the relevant authority and provided the commission paid does not exceed 10% of the issue price of the shares or the amount authorised by the articles, whichever is less.
A company cannot distribute part of its share premium account:
as a dividend;
to write off expenses incurred in connection with the formation of the company; or
to write off expenses incurred in connection with an issue of debentures.
When are shares deemed to be paid up?
Where the company receives:
cash
an undertaking to pay cash to the company (but not to another person) at a later date
a cheque
a release of its liability for a liquidated sum
What area five additional rules regarding payment of shares that apply to public companies?
Subscribers - Shares taken by subscribers must be paid up in cash.
Services - Shares cannot be paid for by an undertaking by someone to do work or perform services for the company or any other person.
1/4 paid up - Shares must be paid up at least as to one-quarter of the nominal value plus the whole of any premium payable.
Long-term undertaking - Shares cannot be allotted as fully or partly paid up otherwise than in cash if the payment is or includes an undertaking which may be performed more than five years after the allotment.
Valuation of non-cash consideration - Any payment otherwise than in cash must be independently valued
What happens when an allotment of shares is made in contravention with the relevant provisions?
Generally speaking, where an allotment is made in contravention of the provisions, the allottee is liable to pay an amount equal to the nominal value of the allotted shares together with interest.
How may any limited company reduce its share capital?
Any limited company may reduce its capital by special resolution confirmed by the court.
If a reduction is confirmed for a public company that results in the nominal value of the allotted share capital falling below the authorised minimum, the company must be re-registered as a private company unless the court directs otherwise
How may a private company reduce its capital?
A private company may reduce its capital by special resolution supported by a solvency statement given by all of the directors in a prescribed form (within 15 days prior to the resolution being passed) confirming the company’s ability to pay its debts over a period of 12 months.
A copy of the resolution and a statement of capital, together with a copy of the solvency statement or court order must be filed with the Registrar.
