Companies - finance Flashcards
Characteristics of ordinary shares
- Dividend may fluctuate.
- Repaid last on liquidation.
- Full voting rights.
- Can share in surplus assets.
- Have pre-emption rights
Characteristics of preference shares
- Dividend is fixed.
- Dividend is cumulative.
- Restricted voting rights.
- Less risky
- preferential rights (receive dividend first)
- Can’t share in surplus assets i
Issued share capital
Value of shares sold by the company
Paid up capital
amount of capital that the members have paid over to the company
Unpaid capital
proportion of the share capital that is still outstanding
Called-up capital
the proportion of unpaid capital which has been requested to be paid into the company but payment has not yet been received
what are redeemable shares
are those which under their terms of issue must be brought back by the company at a certain time
what are class rights?
Class rights are special rights attached to each class of shares, such as dividend rights, distribution of capital on a winding up and voting.
how can class rights be varied?
- 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
what is the minority protection for the variation of class rights?
- 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.
what are pre-emption rights?
- rights of first refusal, new issues must be offered to the existing shareholders first
- 21 days to accept the offer
an allotment of shares must be registered with Companies House within how many months?
2 months
Paying for shares - both type of companies
- 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.
Paying for shares - Private companies
- 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
Paying for shares - Public companies
- 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
Who determines the value of non-cash consideration for shares in public and private companies?
Public companies - the auditor; private companies - the directors.
According to the Companies Act 2006, which shareholders in public companies must pay cash for their shares?
The first shareholders to the company
In public companies, within how many years of issue must any non-cash consideration be received?
Five years
how can authority to allot shares be given in a private company?
- by ordinary resolution in meeting of the members
- by written resolution with more than 50% majority
- in the articles of association
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 ___________
- special resolution
- a solvency statement
- court approval
Why would a company need a reduction of share capital?
- Capital exceeds the company’s needs
- Company’s net assets have fallen in value to below amount of its capital
How would a company have a reduction of share capital?
- Reducing the liability on partly paid shares
- Reducing the amount of paid up share capital
Procedures to reduce share capital for a public company
- Special resolution
- Confirmed by the court
- Notice to creditors
- File resolution and court order with registrar
Procedures to reduce share capital for private company
- Special resolution
- Solvency statement
- File resolution and solvency statement with registrar
- New statement of capital needed
When can a company purchase its own shares?
- If complying with a court order
- Permitted to reduce share capital
- In accordance with Companies Act
Redemption of shares
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
What are the procedures for repurchase or redemption of shares?
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
Process for private companies to purchase and redeem shares - Permissible capital payment
- Statement of solvency
- Special resolution
- Public notice
- Documents filed
What is a statement of solvency?
statutory declaration that the company will be able to pay its debts as they fall due over the next year
Purchase of own shares - Market purchase
- purchase on the stock exchange
- ordinary resolution is required stating maximum number of shares and max and min prices
Purchase of own shares - Off-market purchase
- purchase directly from a shareholder
- special resolution is required
- contract for sale should be prepared and approved by a special resolution of the members
what are treasury shares?
Treasury shares do not have voting or dividends right until the company sells these shares in the future to other shareholders.
in what circumstances can a permissible capital payment be made?
- its distributable profits and proceeds of a fresh issue of shares are insufficient to finance the redemption or purchase of its shares
what does financial assistance include?
- 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
Which two of the following can the company claim an unlawful dividend from?
- Directors
- Members
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
True
list 3 differences between debenture and shares
- shareholders are members, debenture holders are creditors
- shareholders receive a dividend, debenture holders receive interest
- shares cannot be issued at a discount, debentures can
Debenture
- 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
Charges
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.
Fixed charge
The charge here attaches to a particular asset which cannot be sold without the consent of the charge holder (mortgage)
Floating charge
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
What is crystallisation and when does it occur?
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
Security - Fixed charge
- Attached to identifiable asset
- Cannot deal with the asset unless the charge holder consents
Security - Floating charge
- Does not attach until it crystallises
- Attaches to current and future assets at that time e.g stock
- Can continue dealing until charge crystallises
Priority of payment - Fixed charges and floating
Fixed charge has higher priority than floating charge
Advantages of floating charge
- the company can deal freely with the assets
- a wider class of assets can be charges
Disadvantages of floating charge
- 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
True or false
Unsecured creditors take priority over floating charge holders
False
True or false
The preferential creditors take priority over fixed charge holders
False
What is the correct period within which company charges must be registered with registrar of companies
21 days following creation of the charge
redemption of shares must be financed out by:
- Distributable profits
- proceeds of new issue
- Permissible capital payment (private companies)
