Chapter 9 - Companies: Finance Flashcards
What rights to ordinary shares give?
Auto right to have capital repaid
Participate in redistribution of profits when company is wound up
Statutory pre-emption rights
What rights to preference shares give?
Capital repaid on winding up
Can have priority for return of capital
Prior right to a fixed dividend
What happens to preference shares upon liquidation?
Cease to be entitled to any unpaid preference dividends unless already declared or articles say otherwise
What voting rights to preference shares have?
Same as ordinary shares in absence of excess provision
Do preference shares have rights of pre-emption?
No unless articles specifically say so
What is a redeemable share?
Issued on terms that it can be bought back by the company at the option of company/shareholders
What do the articles state about redeemable shares for private/public companies?
Public - must give authority
Private - may specifically exclude/restrict
What are class rights?
Rights which attach to shares in a specific class and differ from rights enjoyed by all shareholders
Special resolution required to alter
What are the conditions to be able to apply to court for unfairly prejudicial?
Hold at least 15% of shares of class in question
Apply within 21 days
What are pre-emption rights?
Right to be offered new equity shares pro-rata to existing holding
How must pre-emption rights be communicated?
Offer in writing/electronically
> 21 days period of acceptation
Can pre-emption rights apply in the case of exclusion, exceptions and disapplication?
No
Can shares be allotted at a discount?
No
Must never fall below nominal value
What happens if shares are allotted at a discount?
Allottee liable to pay the company discount + interest
What does a company do with premiums paid on shares?
Puts them in share premium account
Amount transferred may be used to write off expense of issuing shares
What are the special rules regarding group reconstruction and merger relief?
Company cannot distribute part of its share premium account as a dividend
What does issuing shares at par mean?
Shares obtain consideration equal to nominal value
Can shares be issued at below market value?
Yes
What is the general rule regarding allotment?
Where an allotment is made in contravention of provisions, allottee liable to pay amount equal to nominal value of allotted shares + interest
How are unlisted shares tramsferred?
Once agreement reached, the transferor holds the shares as trustee for the transferee until registration
Transferor remains member of the company with voting rights
What form does the transferor have to complete?
Stock transfer form in favour of transferee
Given to transferee with certificate
Both sent to company for registration
What happens if a company refuses the transferee?
Must provide reasons for refusal within 2 months
Can securities be transferred without written instrument?
Yes
What happens under the CREST system?
member appoints custodian broker to hold shares under customer agreement
What is the capital principle?
Companies should only use share capital for business purposes
What upholds the capital principle?
Companies Act 2006
Various provisions limit capital reduction schemes and restrict freedom of a company to purchase its own shares
What is the authorised min share capital requirement a public company must satisfy?
£50k
What is issued/allotted share capital?
Shares issued/allotted
Company doesn’t need to issue all of its share capital
What is called-up share capital?
So much of the share capital as equals the aggregate amount of the calls made on its shares + share capital paid up without being called
What is equity share capital?
Issued share capital that carries any right to participate beyond the specified amount
What is loan capital?
Borrowed money of the company
Why may a company wish to reduce share capital?
If share capital exceeds needs of the company
Net assets may have fallen to value below share capital
How can a company reduce share capital?
Reducing liability of shareholders on partly paid shares
Cancel paid up share capital not represented by assets
Repay surplus share capital
How do companies achieve reductions in share capital
Public - must go to court
Private - can choose to go to court
How may a private/public company reduce capital?
By special resolution confirmed by court
Subject to right of creditors to object to the reduction
What happens if a capital reduction is confirmed for a public company that results in the nominal value of the allotted share capital falling below authorised min?
Company must re-register as private
How may a private company choose to reduce its share capital?
By special resolution supported by a solvency statement given by all directors within 15 days prior to resolution being passed
Statement must confirm company is able to pay debts over 12 months
Cheaper than court
How are the share premium and capital reserve account treated?
As share capital
Can therefore be reduced
How can a company increase share capital?
Allotting more shares
What notice must be given to registrar when increasing share capital?
Notice + statement of capital within 1 month of the change
How can a company subdivide/consolidate share capital?
Ordinary resolution
Proportion between amount paid and amount unpaid on original shares must remain the same
what are the conditions for shares to be redeemed?
Fully paid
Redeemed out of distributable profits
Private limited companies can redeem shares out of capital
How is the amount of permissable capital payment (PCP) determined?
Balance remaining once any available profits and proceeds from a fresh issue of shares have been used up
When can the PCP be made?
Only where directors’ statement and auditor’s report support the payment and it’s approved by a special resolution
Payment made 5-7 weeks after resolution passed
What are the limited circumstances in which companies can purchase their own shares?
Redemption/purchase of shares in accordance with companies act 2006
Acquisition of shares in a permitted reduction of capital
Comply with court order
when must details be given to registrar once own shares have been purchased?
Within 28 days
Can financial assistance be given for purchase of shares?
Private - yes
Public - subject to restrictions
When is a public company prohibited from giving financial assistance?
At/before time of acquisition of shares in a public company
What is the formula for profits available for distribution?
Accumulated realised profits - accumulated realised losses
When is a dividend a debt?
Declared and due for payment
When may a public company make a distribution?
Only if net assets are, at the time, not less than the aggregate of its called up share capital and undistributable reserves
What are undistributable reserves?
share premium account, capital redemption reserve and revaluation reserve
What is a debenture?
Written acknowledgement of a debt by a company, normally contains provisions as to repayment of capital and interest
Formal legal doc
What is also a debenture in company law?
Doc relating to an unsecure loan
Why is debenture stock preferable for an investor?
Offers greater security
Yields a fixed income
What is a charge?
Encumbrance upon real/personal property granted by one party that gives the other party certain rights over that property
What are the advantages of using a fixed charge?
Confers immediate rights over identified assets
Priority over a floating charge
What are the advantages of using a floating charge?
Applicable to current and future assets
What are the disadvantages of a floating charge?
Cannot be certain which form security takes until charge crystallises
Even when crystallised, chargee may find themselves postponed to the claim of other creditors
What clause did the Enterprise act 2000 introduce into the Insolvency act 1986 state?
Prescribed part of the net property of the company will be available to unsecured creditors, regardless of any charges over that property
What must a company keep available for inspection?
Copy of every instrument creating a charge which is required to be registered
Register of charges, fixed and floated, containing name, amount and description
When must a charge be registered with the registrar?
Within 21 days from when charge is created
Failure to register punishable by fine and affects validity of charge
Can ordinary or preference shares carry the right to demand payment of a dividend?
No
is there an obligation from members to take on additional shares?
No
When do statutory rights of pre-emption apply?
Allotment of equity securities for cash
When do any shares subsequently allotted must be paid up at least as to one-quarter of the nominal value
together with the whole of any share premium payable in respect of them.
In a public company
Can shares in a public company be paid for by performing work?
No
Does the CREST transfer system operate in respect of all shares?
No
Redeemable shares may only be issued where there are other shares issued that are not
redeemable.
Yes
Do a company’s articles of association have to contain the relevant authority for redeemable shares to be issued?
No
Articles may, however, restrict or exclude the issue of redeemable shares.
What is the specified time of a fixed charge to be avoided by a liquidator?
Created within 6 months before insolvency
What is the specified time of a floating charge to be avoided by a liquidator?
Created within 12 months before insolvency
Can shares be issued at a premium not only for cash but also for consideration other than cash?
Yes
Does the debt of unpaid premium shares pass onto the next owner?
No, remains with the original owner
