Chapter 9 - Companies: Finance Flashcards

1
Q

What rights to ordinary shares give?

A

Auto right to have capital repaid

Participate in redistribution of profits when company is wound up

Statutory pre-emption rights

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2
Q

What rights to preference shares give?

A

Capital repaid on winding up

Can have priority for return of capital

Prior right to a fixed dividend

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3
Q

What happens to preference shares upon liquidation?

A

Cease to be entitled to any unpaid preference dividends unless already declared or articles say otherwise

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4
Q

What voting rights to preference shares have?

A

Same as ordinary shares in absence of excess provision

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5
Q

Do preference shares have rights of pre-emption?

A

No unless articles specifically say so

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6
Q

What is a redeemable share?

A

Issued on terms that it can be bought back by the company at the option of company/shareholders

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7
Q

What do the articles state about redeemable shares for private/public companies?

A

Public - must give authority

Private - may specifically exclude/restrict

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8
Q

What are class rights?

A

Rights which attach to shares in a specific class and differ from rights enjoyed by all shareholders

Special resolution required to alter

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9
Q

What are the conditions to be able to apply to court for unfairly prejudicial?

A

Hold at least 15% of shares of class in question

Apply within 21 days

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10
Q

What are pre-emption rights?

A

Right to be offered new equity shares pro-rata to existing holding

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11
Q

How must pre-emption rights be communicated?

A

Offer in writing/electronically

> 21 days period of acceptation

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12
Q

Can pre-emption rights apply in the case of exclusion, exceptions and disapplication?

A

No

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13
Q

Can shares be allotted at a discount?

A

No

Must never fall below nominal value

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14
Q

What happens if shares are allotted at a discount?

A

Allottee liable to pay the company discount + interest

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15
Q

What does a company do with premiums paid on shares?

A

Puts them in share premium account

Amount transferred may be used to write off expense of issuing shares

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16
Q

What are the special rules regarding group reconstruction and merger relief?

A

Company cannot distribute part of its share premium account as a dividend

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17
Q

What does issuing shares at par mean?

A

Shares obtain consideration equal to nominal value

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18
Q

Can shares be issued at below market value?

A

Yes

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19
Q

What is the general rule regarding allotment?

A

Where an allotment is made in contravention of provisions, allottee liable to pay amount equal to nominal value of allotted shares + interest

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20
Q

How are unlisted shares tramsferred?

A

Once agreement reached, the transferor holds the shares as trustee for the transferee until registration

Transferor remains member of the company with voting rights

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21
Q

What form does the transferor have to complete?

A

Stock transfer form in favour of transferee

Given to transferee with certificate

Both sent to company for registration

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22
Q

What happens if a company refuses the transferee?

A

Must provide reasons for refusal within 2 months

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23
Q

Can securities be transferred without written instrument?

A

Yes

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24
Q

What happens under the CREST system?

A

member appoints custodian broker to hold shares under customer agreement

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25
What is the capital principle?
Companies should only use share capital for business purposes
26
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
27
What is the authorised min share capital requirement a public company must satisfy?
£50k
28
What is issued/allotted share capital?
Shares issued/allotted Company doesn't need to issue all of its share capital
29
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
30
What is equity share capital?
Issued share capital that carries any right to participate beyond the specified amount
31
What is loan capital?
Borrowed money of the company
32
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
33
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
34
How do companies achieve reductions in share capital
Public - must go to court Private - can choose to go to court
35
How may a private/public company reduce capital?
By special resolution confirmed by court Subject to right of creditors to object to the reduction
36
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
37
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
38
How are the share premium and capital reserve account treated?
As share capital Can therefore be reduced
39
How can a company increase share capital?
Allotting more shares
40
What notice must be given to registrar when increasing share capital?
Notice + statement of capital within 1 month of the change
41
How can a company subdivide/consolidate share capital?
Ordinary resolution Proportion between amount paid and amount unpaid on original shares must remain the same
42
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
43
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
44
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
45
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
46
when must details be given to registrar once own shares have been purchased?
Within 28 days
47
Can financial assistance be given for purchase of shares?
Private - yes Public - subject to restrictions
48
When is a public company prohibited from giving financial assistance?
At/before time of acquisition of shares in a public company
49
What is the formula for profits available for distribution?
Accumulated realised profits - accumulated realised losses
50
When is a dividend a debt?
Declared and due for payment
51
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
52
What are undistributable reserves?
share premium account, capital redemption reserve and revaluation reserve
53
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
54
What is also a debenture in company law?
Doc relating to an unsecure loan
55
Why is debenture stock preferable for an investor?
Offers greater security Yields a fixed income
56
What is a charge?
Encumbrance upon real/personal property granted by one party that gives the other party certain rights over that property
57
What are the advantages of using a fixed charge?
Confers immediate rights over identified assets Priority over a floating charge
58
What are the advantages of using a floating charge?
Applicable to current and future assets
59
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
60
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
61
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
62
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
63
Can ordinary or preference shares carry the right to demand payment of a dividend?
No
64
is there an obligation from members to take on additional shares?
No
65
When do statutory rights of pre-emption apply?
Allotment of equity securities for cash
66
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
67
Can shares in a public company be paid for by performing work?
No
68
Does the CREST transfer system operate in respect of all shares?
No
69
Redeemable shares may only be issued where there are other shares issued that are not redeemable.
Yes
70
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.
71
What is the specified time of a fixed charge to be avoided by a liquidator?
Created within 6 months before insolvency
72
What is the specified time of a floating charge to be avoided by a liquidator?
Created within 12 months before insolvency
73
Can shares be issued at a premium not only for cash but also for consideration other than cash?
Yes
74
Does the debt of unpaid premium shares pass onto the next owner?
No, remains with the original owner