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Companies - finance Flashcards

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1
Q

Characteristics of ordinary shares

A
  • Dividend may fluctuate.
  • Repaid last on liquidation.
  • Full voting rights.
  • Can share in surplus assets.
  • Have pre-emption rights
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2
Q

Characteristics of preference shares

A
  • Dividend is fixed.
  • Dividend is cumulative.
  • Restricted voting rights.
  • Less risky
  • preferential rights (receive dividend first)
  • Can’t share in surplus assets i
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3
Q

Issued share capital

A

Value of shares sold by the company

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4
Q

Paid up capital

A

amount of capital that the members have paid over to the company

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5
Q

Unpaid capital

A

proportion of the share capital that is still outstanding

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6
Q

Called-up capital

A

the proportion of unpaid capital which has been requested to be paid into the company but payment has not yet been received

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7
Q

what are redeemable shares

A

are those which under their terms of issue must be brought back by the company at a certain time

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8
Q

what are class rights?

A

Class rights are special rights attached to each class of shares, such as dividend rights, distribution of capital on a winding up and voting.

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9
Q

how can class rights be varied?

A
  • Yes - procedure set out in articles must be followed
  • No - variation needs special resolution or written consent of 75% in nominal value of the class
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10
Q

what is the minority protection for the variation of class rights?

A
  • if holders >15% of class shares affected object to the variation
  • may apply to courts within 21 days to cancel variation
  • petitioner must prove that variation is unfairly prejudicial
    Court will not cancel if change not made to the rights themselves.
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11
Q

what are pre-emption rights?

A
  • rights of first refusal, new issues must be offered to the existing shareholders first
  • 21 days to accept the offer
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12
Q

an allotment of shares must be registered with Companies House within how many months?

A

2 months

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13
Q

Paying for shares - both type of companies

A
  • Shares can be issued at a price below market value.
  • Shares may not be allotted at a discount to the nominal value of the shares.
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14
Q

Paying for shares - Private companies

A
  • Shares must be paid for in cash, or non-cash consideration of a sufficient value.
  • Performing a service for the company is acceptable payment for shares
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15
Q

Paying for shares - Public companies

A
  • Shares must be allotted at at least ¼ of nominal value plus any premium payable.
  • Shares taken by subscribers to the memorandum must be paid in cash.
  • Non- cash consideration must be received within 5 years
  • Payment of shares must not be in the form of work or services
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16
Q

Who determines the value of non-cash consideration for shares in public and private companies?

A

Public companies - the auditor; private companies - the directors.

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17
Q

According to the Companies Act 2006, which shareholders in public companies must pay cash for their shares?

A

The first shareholders to the company

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18
Q

In public companies, within how many years of issue must any non-cash consideration be received?

A

Five years

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19
Q

how can authority to allot shares be given in a private company?

A
  • by ordinary resolution in meeting of the members
  • by written resolution with more than 50% majority
  • in the articles of association
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20
Q

To reduce the capital in the company all companies must first gain ______

If the company is private they must support this with __________

A public company must instead gain ___________

A
  1. special resolution
  2. a solvency statement
  3. court approval
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21
Q

Why would a company need a reduction of share capital?

A
  • Capital exceeds the company’s needs
  • Company’s net assets have fallen in value to below amount of its capital
22
Q

How would a company have a reduction of share capital?

A
  • Reducing the liability on partly paid shares
  • Reducing the amount of paid up share capital
23
Q

Procedures to reduce share capital for a public company

A
  • Special resolution
  • Confirmed by the court
  • Notice to creditors
  • File resolution and court order with registrar
24
Q

Procedures to reduce share capital for private company

A
  • Special resolution
  • Solvency statement
  • File resolution and solvency statement with registrar
  • New statement of capital needed
25
Q

When can a company purchase its own shares?

A
  • If complying with a court order
  • Permitted to reduce share capital
  • In accordance with Companies Act
26
Q

Redemption of shares

A

When shares are issued on terms which allow them to be redeemed at a later date.

Detailed terms are set out in articles of association.

Redeemable shares can only be issued when there are other shares issued that are not redeemable

27
Q

What are the procedures for repurchase or redemption of shares?

A

To be purchased at fully paid shares

Must be no restriction in the articles

Must be one non-redeemable share in issue after the repurchase

28
Q

Process for private companies to purchase and redeem shares - Permissible capital payment

A
  • Statement of solvency
  • Special resolution
  • Public notice
  • Documents filed
29
Q

What is a statement of solvency?

A

statutory declaration that the company will be able to pay its debts as they fall due over the next year

30
Q

Purchase of own shares - Market purchase

A
  • purchase on the stock exchange
  • ordinary resolution is required stating maximum number of shares and max and min prices
31
Q

Purchase of own shares - Off-market purchase

A
  • purchase directly from a shareholder
  • special resolution is required
  • contract for sale should be prepared and approved by a special resolution of the members
32
Q

what are treasury shares?

A

Treasury shares do not have voting or dividends right until the company sells these shares in the future to other shareholders.

33
Q

in what circumstances can a permissible capital payment be made?

A
  • its distributable profits and proceeds of a fresh issue of shares are insufficient to finance the redemption or purchase of its shares
34
Q

what does financial assistance include?

A
  • a gift, loan or indemnity
  • a guarantee or security of third party loan
  • any other financial assistance whereby the net assets of the company are materially reduced
35
Q

Which two of the following can the company claim an unlawful dividend from?

A
  • Directors
  • Members
36
Q

TRUE OR FALSE
the payment of interest is an allowable cost against the company’s taxable profits so can reduce the company’s tax bill, whereas dividends are not

A

True

37
Q

list 3 differences between debenture and shares

A
  1. shareholders are members, debenture holders are creditors
  2. shareholders receive a dividend, debenture holders receive interest
  3. shares cannot be issued at a discount, debentures can
38
Q

Debenture

A
  • Written acknowledgement of a debt by a company, which normally contains provisions as to repayment of capital and interest
  • Is a creditor of the company
39
Q

Charges

A

A charge is security given to the creditor as security for a particular debt. If the debt is unpaid the creditor may take the asset and sell for repayment.

40
Q

Fixed charge

A

The charge here attaches to a particular asset which cannot be sold without the consent of the charge holder (mortgage)

41
Q

Floating charge

A

Attached to a class of assets but will not prevent the debtor from selling asset unless the charge crystallises.

Once crystallised it becomes a fixed charge

42
Q

What is crystallisation and when does it occur?

A

The Company can no longer deal freely with the assets
- On liquidation
- When company ceases to carry on business
- Any event specifies in the debenture

43
Q

Security - Fixed charge

A
  • Attached to identifiable asset
  • Cannot deal with the asset unless the charge holder consents
44
Q

Security - Floating charge

A
  • Does not attach until it crystallises
  • Attaches to current and future assets at that time e.g stock
  • Can continue dealing until charge crystallises
45
Q

Priority of payment - Fixed charges and floating

A

Fixed charge has higher priority than floating charge

46
Q

Advantages of floating charge

A
  • the company can deal freely with the assets
  • a wider class of assets can be charges
47
Q

Disadvantages of floating charge

A
  • The value of the security is uncertain until it crystalises
  • Lower priority than fixed charge
  • Liquidator can ignore if it was created 12 months of winding up
48
Q

True or false
Unsecured creditors take priority over floating charge holders

A

False

49
Q

True or false
The preferential creditors take priority over fixed charge holders

A

False

50
Q

What is the correct period within which company charges must be registered with registrar of companies

A

21 days following creation of the charge

51
Q

redemption of shares must be financed out by:

A
  • Distributable profits
  • proceeds of new issue
  • Permissible capital payment (private companies)

Law (13 decks)

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