Chapter 9 - Companies: Finance

Question 1

What rights to ordinary shares give?

Answer 1

Auto right to have capital repaid

Participate in redistribution of profits when company is wound up

Statutory pre-emption rights

Question 2

What rights to preference shares give?

Answer 2

Capital repaid on winding up

Can have priority for return of capital

Prior right to a fixed dividend

Question 3

What happens to preference shares upon liquidation?

Answer 3

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

Question 4

What voting rights to preference shares have?

Answer 4

Same as ordinary shares in absence of excess provision

Question 5

Do preference shares have rights of pre-emption?

Answer 5

No unless articles specifically say so

Question 6

What is a redeemable share?

Answer 6

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

Question 7

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

Answer 7

Public - must give authority

Private - may specifically exclude/restrict

Question 8

What are class rights?

Answer 8

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

Special resolution required to alter

Question 9

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

Answer 9

Hold at least 15% of shares of class in question

Apply within 21 days

Question 10

What are pre-emption rights?

Answer 10

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

Question 11

How must pre-emption rights be communicated?

Answer 11

Offer in writing/electronically

> 21 days period of acceptation

Question 12

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

Answer 12

No

Question 13

Can shares be allotted at a discount?

Answer 13

No

Must never fall below nominal value

Question 14

What happens if shares are allotted at a discount?

Answer 14

Allottee liable to pay the company discount + interest

Question 15

What does a company do with premiums paid on shares?

Answer 15

Puts them in share premium account

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

Question 16

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

Answer 16

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

Question 17

What does issuing shares at par mean?

Answer 17

Shares obtain consideration equal to nominal value

Question 18

Can shares be issued at below market value?

Answer 18

Yes

Question 19

What is the general rule regarding allotment?

Answer 19

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

Question 20

How are unlisted shares tramsferred?

Answer 20

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

Transferor remains member of the company with voting rights

Question 21

What form does the transferor have to complete?

Answer 21

Stock transfer form in favour of transferee

Given to transferee with certificate

Both sent to company for registration

Question 22

What happens if a company refuses the transferee?

Answer 22

Must provide reasons for refusal within 2 months

Question 23

Can securities be transferred without written instrument?

Answer 23

Yes

Question 24

What happens under the CREST system?

Answer 24

member appoints custodian broker to hold shares under customer agreement

Question 25

What is the capital principle?

Answer 25

Companies should only use share capital for business purposes

Question 26

What upholds the capital principle?

Answer 26

Companies Act 2006 Various provisions limit capital reduction schemes and restrict freedom of a company to purchase its own shares

Question 27

What is the authorised min share capital requirement a public company must satisfy?

Answer 27

£50k

Question 28

What is issued/allotted share capital?

Answer 28

Shares issued/allotted Company doesn't need to issue all of its share capital

Question 29

What is called-up share capital?

Answer 29

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

Question 30

What is equity share capital?

Answer 30

Issued share capital that carries any right to participate beyond the specified amount

Question 31

What is loan capital?

Answer 31

Borrowed money of the company

Question 32

Why may a company wish to reduce share capital?

Answer 32

If share capital exceeds needs of the company Net assets may have fallen to value below share capital

Question 33

How can a company reduce share capital?

Answer 33

Reducing liability of shareholders on partly paid shares Cancel paid up share capital not represented by assets Repay surplus share capital

Question 34

How do companies achieve reductions in share capital

Answer 34

Public - must go to court Private - can choose to go to court

Question 35

How may a private/public company reduce capital?

Answer 35

By special resolution confirmed by court Subject to right of creditors to object to the reduction

Question 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?

Answer 36

Company must re-register as private

Question 37

How may a private company choose to reduce its share capital?

Answer 37

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

Question 38

How are the share premium and capital reserve account treated?

Answer 38

As share capital Can therefore be reduced

Question 39

How can a company increase share capital?

Answer 39

Allotting more shares

Question 40

What notice must be given to registrar when increasing share capital?

Answer 40

Notice + statement of capital within 1 month of the change

Question 41

How can a company subdivide/consolidate share capital?

Answer 41

Ordinary resolution Proportion between amount paid and amount unpaid on original shares must remain the same

Question 42

what are the conditions for shares to be redeemed?

Answer 42

Fully paid Redeemed out of distributable profits Private limited companies can redeem shares out of capital

Question 43

How is the amount of permissable capital payment (PCP) determined?

Answer 43

Balance remaining once any available profits and proceeds from a fresh issue of shares have been used up

Question 44

When can the PCP be made?

Answer 44

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

Question 45

What are the limited circumstances in which companies can purchase their own shares?

Answer 45

Redemption/purchase of shares in accordance with companies act 2006 Acquisition of shares in a permitted reduction of capital Comply with court order

Question 46

when must details be given to registrar once own shares have been purchased?

Answer 46

Within 28 days

Question 47

Can financial assistance be given for purchase of shares?

Answer 47

Private - yes Public - subject to restrictions

Question 48

When is a public company prohibited from giving financial assistance?

Answer 48

At/before time of acquisition of shares in a public company

Question 49

What is the formula for profits available for distribution?

Answer 49

Accumulated realised profits - accumulated realised losses

Question 50

When is a dividend a debt?

Answer 50

Declared and due for payment

Question 51

When may a public company make a distribution?

Answer 51

Only if net assets are, at the time, not less than the aggregate of its called up share capital and undistributable reserves

Question 52

What are undistributable reserves?

Answer 52

share premium account, capital redemption reserve and revaluation reserve

Question 53

What is a debenture?

Answer 53

Written acknowledgement of a debt by a company, normally contains provisions as to repayment of capital and interest Formal legal doc

Question 54

What is also a debenture in company law?

Answer 54

Doc relating to an unsecure loan

Question 55

Why is debenture stock preferable for an investor?

Answer 55

Offers greater security Yields a fixed income

Question 56

What is a charge?

Answer 56

Encumbrance upon real/personal property granted by one party that gives the other party certain rights over that property

Question 57

What are the advantages of using a fixed charge?

Answer 57

Confers immediate rights over identified assets Priority over a floating charge

Question 58

What are the advantages of using a floating charge?

Answer 58

Applicable to current and future assets

Question 59

What are the disadvantages of a floating charge?

Answer 59

Cannot be certain which form security takes until charge crystallises Even when crystallised, chargee may find themselves postponed to the claim of other creditors

Question 60

What clause did the Enterprise act 2000 introduce into the Insolvency act 1986 state?

Answer 60

Prescribed part of the net property of the company will be available to unsecured creditors, regardless of any charges over that property

Question 61

What must a company keep available for inspection?

Answer 61

Copy of every instrument creating a charge which is required to be registered Register of charges, fixed and floated, containing name, amount and description

Question 62

When must a charge be registered with the registrar?

Answer 62

Within 21 days from when charge is created Failure to register punishable by fine and affects validity of charge

Question 63

Can ordinary or preference shares carry the right to demand payment of a dividend?

Answer 63

No

Question 64

is there an obligation from members to take on additional shares?

Answer 64

No

Question 65

When do statutory rights of pre-emption apply?

Answer 65

Allotment of equity securities for cash

Question 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.

Answer 66

In a public company

Question 67

Can shares in a public company be paid for by performing work?

Answer 67

No

Question 68

Does the CREST transfer system operate in respect of all shares?

Answer 68

No

Question 69

Redeemable shares may only be issued where there are other shares issued that are not redeemable.

Answer 69

Yes

Question 70

Do a company's articles of association have to contain the relevant authority for redeemable shares to be issued?

Answer 70

No Articles may, however, restrict or exclude the issue of redeemable shares.

Question 71

What is the specified time of a fixed charge to be avoided by a liquidator?

Answer 71

Created within 6 months before insolvency

Question 72

What is the specified time of a floating charge to be avoided by a liquidator?

Answer 72

Created within 12 months before insolvency

Question 73

Can shares be issued at a premium not only for cash but also for consideration other than cash?

Answer 73

Yes

Question 74

Does the debt of unpaid premium shares pass onto the next owner?

Answer 74

No, remains with the original owner