Companies: Finance

Question 1

What are the 3 types of shares?

Answer 1

Ordinary
Preference
Redeemable

Question 2

What are the characteristics for preference and ordinary shares?

Answer 2

Special/standard
Preferential right to dividend/can have dividends
Voting rights disapplied/yes
Pre-emption rights no/yes
Right to be repaid capital in surplus profit upon winding up/capital repaid upon winding up
Right to participate in a rights issue no/yes

Question 3

What are redeemable shares?

Answer 3

Shares issued that can be bought back by the company - can only be issued when non-redeemable shares issued

Question 4

How can class rights be varied and when does the notice have to be given to the Registrar?

Answer 4

In accordance with the articles
Special resolution - written consent of >75% of class
Within 1 month of variation

Question 5

How can shareholders object to a variation of class rights?

Answer 5

Holders of at least 15% of shares can apply to court within 21 days of change to have it cancelled

Question 6

What requirements are there for Ltd companies to issue shares?

Answer 6

Authority given by articles or ordinary resolution
State max no. of shares
State expiry date - no more than 5 years

Question 7

What are rights and bonus issues?

Answer 7

Rights - allotment of shares to existing holders pro rata to existing shares, can sell rights if don’t want them
Bonus - issue of additional shares to holders in proportion to holdings for free

Question 8

What are the rights of pre-emption?

Answer 8

The right of first refusal - if breach occurs, must claim within 2 years
Offer equity shares on pro rata basis
Wait 21 days
Securities not accepted can be issued to non-members

Question 9

What are the exceptions to pre-emption?

Answer 9

Bonus share
Non-cash consideration shares
Employee share schemes
Exclusion in article or by special resolution

Question 10

Can shares be allotted at a discount?

Answer 10

No - must pay amount of discount plus interest

Question 11

Can shares be issued at a premium?

Answer 11

Yes

Question 12

How can/can’t the share premium account be used?

Answer 12

Can: write off expense of issuing those shares, allot to members as fully paid bonus shares, group reconstruction relief and merge relief
Can’t: as a dividend, write off formation expenses, write off issue of debenture expenses

Question 13

How can shares be paid for?

Answer 13

Cash
Undertaking to pay cash at later date
Cheque
Release of liability for liquidated sum
Goodwill

Question 14

What are the restrictions in payment of shares for public companies?

Answer 14

Must be paid in cash
Cannot be paid for by services
Must be paid up to at least 1/4 of nominal value plus whole premium payable
Cannot be allotted as fully/partly paid up otherwise than in cash if payment includes undertaking performed more than 5 years after allotment
Other payment methods must be valued by a 3rd party

Question 15

How are unlisted and listed shares transferred?

Answer 15

Unlisted - stock transfer form given with share certificate sent to company to register - refusal within 2 months
Listed - CREST share system in listed companies in 3 days

Question 16

How are shareholder’s funds protected in the company?

Answer 16

Restricting dividends to be paid out of distributable reserves
No discounted shares
Restrictions on reduction of share capital, repurchase of own shares, redemption of shares

Question 17

Why might a company reduce share capital?

Answer 17

Capital exceeds company’s needs
Net asset value fallen below amount of capital and position likely to be permanent - PLC in crisis

Question 18

How does a company reduce its share capital?

Answer 18

Reduce liability on partly paid shares
Reducing amount of of paid up share capital
Public company - special resolution, court confirmation, notice to creditors, file with registrar
Private - special resolution, solvency statement signed within 15 days of SR, file with registrar

Question 19

When is it okay to purchase the company’s own shares?

Answer 19

Complying with court order
Forfeiture of shares when failure to pay for them
Redemption or purchase within Companies act
Acquisition in permitted reduction

Question 20

What are market and off-market purchases?

Answer 20

Made on recognised investment exchange, authorised by resolution specifying max shares and max/min price
Not done through recognised investment exchange, authorised by contract

Question 21

What is the procedure for repurchase or redemption of shares for public company?

Answer 21

Fully paid shares
No restriction by articles
1 non-redeemable share in issue after repurchase
Distributable profits
Proceeds of share issue for purpose of financing purchase

Question 22

What is the procedure for repurchase or redemption of shares for private company?

Answer 22

Fully paid shares
No restriction by articles
1 non-redeemable share in issue after repurchase
Capital to funds by special resolution, statement of solvency supported by auditor report, publicised repurchase to creditors, payment made within 5-7 weeks

Question 23

What are other changes to share capital?

Answer 23

Increase - more shares allotted
Subdivision or consolidation - divide shares into smaller nominals
Redenomination - change currency
Given to registrar with statement of capital within 1 month

Question 24

What is the minimum capital for a public company?

Answer 24

£50000

Question 25

What is financial assistance?

Answer 25

The purchase of shares by a gift/gift of money, guaranteeing/providing security for 3rd party loan
Breaches result in fine/imprisonment

Question 26

Who can give financial assistance?

Answer 26

Private companies
Public companies - principle purpose is something other than proposed acquisition/ giving of assistance incidental part of larger purpose
Lending money - banks
Given in good faith in interest of company

Question 27

What are distributable reserves?

Answer 27

Accumulated realised profits less accumulated realised losses
Public company can only make distribution if net assets not less than called-up share capital and undistributable reserves

Question 28

What are undistributable reserves?

Answer 28

Share premium account
Capital redemption reserve
Surplus of accumulated unrealised profits over accumulated unrealised losses
Any reserve prohibited from distributing from

Question 29

What is the consequence of a wrongful distribution?

Answer 29

Member liable to repay it

Question 30

What is a debenture?

Answer 30

Written acknowledgement of a debt containing provisions for repayment of capital and interest
Debt unsecured/secured
Long term investments

Question 31

What is a charge, fixed charge and floating charge?

Answer 31

Charge - security given to creditor for a particular debt
Fixed - particular asset which cannot be sold without consent of holder
Floating - class of assets can be sold, if payment not made then charge crystallises to fixed

Question 32

What is the enterprise act?

Answer 32

Allows unsecured creditors to ring fence money

Question 33

What is the enforcement of charges?

Answer 33

Fixed - grants holder right of enforcement against identified assets
Floating - company or holder appointing liquidator/administrator

Question 34

What is the effect of insolvency on charges?

Answer 34

Fixed - Secured debt within 6 months before insolvency may be invalid
Floating - Void if made within 12 months before liquidation

Question 35

What records of charges must be maintained by the company?

Answer 35

Copy of every instrument creating a charge
All fixed and floating charges - names, amounts, description
Kept at office, available for inspection

Question 36

What records of charges must be maintained by the company registrar?

Answer 36

Prescribed particulars, instrument by which charge created within 21 days starting on day after charge created
Issue certificate of registration

Question 37

What are the consequences for failing to register charges?

Answer 37

Charge void against liquidator, administrator and creditor
Punishable by fine - period of registration may be extended if failure was inadvertent/ not likely to prejudice

Question 38

What are the lenders’ remedies for failure to disclose charges?

Answer 38

Unsecured - Apply to court for compulsory winding up
Appoint administrator
Secured - appoint administrative receiver