Chapter 8 - Corporate finance Flashcards
What is distribution?
Any direct or indirect transfer of money or other property of the company, whether out of capital or profits, to shareholders in their capacity as shareholders.
What is a share?
Incorporeal, movable property transferable in the manner provided for by the Companies Act.
What are deferred shares?
A class of shares commonly issued to the founders of the company. Deferred shareholders are last in line to receive dividends.
What is a debenture?
A document issued by the company acknowledging that it is indebted to the holder in the amount stated therein.
What is a dividend?
A distribution by a company to its shareholders of part or all its profits.
What are ordinary shares?
The residual category of a company’s shares does not carry any special class rights, such as special voting rights or preferential rights to payments of dividends. Ordinary shareholders usually receive dividends after the preference shareholders have received theirs.
What are preference shares?
A class of share that provides a preferential right, including a preference to receive dividends when declared, for its holder.
Types of preference shares?
- Cumulative shares
- Participating preference shares
- preferential right to capital on winding-up
- Convertible preference shares
In what circumstances may a distribution be made?
- The board of directors must authorise the distribution.
- It must reasonably appear that the company will be able to satisfy the solvency and liquidity tests immediately after the distribution has been made.
- The board must acknowledge by way of resolution that it has applied the solvency and liquidity tests and reasonably concluded that the company will satisfy the tests immediately after completion of the proposed distribution.
Where are the solvency and liquidity tests set out?
Section 4 of the Companies Act.
