Companies: Finance Flashcards
What are the 3 types of shares?
Ordinary
Preference
Redeemable
What are the characteristics for preference and ordinary shares?
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
What are redeemable shares?
Shares issued that can be bought back by the company - can only be issued when non-redeemable shares issued
How can class rights be varied and when does the notice have to be given to the Registrar?
In accordance with the articles
Special resolution - written consent of >75% of class
Within 1 month of variation
How can shareholders object to a variation of class rights?
Holders of at least 15% of shares can apply to court within 21 days of change to have it cancelled
What requirements are there for Ltd companies to issue shares?
Authority given by articles or ordinary resolution
State max no. of shares
State expiry date - no more than 5 years
What are rights and bonus issues?
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
What are the rights of pre-emption?
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
What are the exceptions to pre-emption?
Bonus share
Non-cash consideration shares
Employee share schemes
Exclusion in article or by special resolution
Can shares be allotted at a discount?
No - must pay amount of discount plus interest
Can shares be issued at a premium?
Yes
How can/can’t the share premium account be used?
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
How can shares be paid for?
Cash
Undertaking to pay cash at later date
Cheque
Release of liability for liquidated sum
Goodwill
What are the restrictions in payment of shares for public companies?
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
How are unlisted and listed shares transferred?
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
How are shareholder’s funds protected in the company?
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
Why might a company reduce share capital?
Capital exceeds company’s needs
Net asset value fallen below amount of capital and position likely to be permanent - PLC in crisis
How does a company reduce its share capital?
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
When is it okay to purchase the company’s own shares?
Complying with court order
Forfeiture of shares when failure to pay for them
Redemption or purchase within Companies act
Acquisition in permitted reduction
What are market and off-market purchases?
Made on recognised investment exchange, authorised by resolution specifying max shares and max/min price
Not done through recognised investment exchange, authorised by contract
What is the procedure for repurchase or redemption of shares for public company?
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
What is the procedure for repurchase or redemption of shares for private company?
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
What are other changes to share capital?
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
What is the minimum capital for a public company?
£50000
What is financial assistance?
The purchase of shares by a gift/gift of money, guaranteeing/providing security for 3rd party loan
Breaches result in fine/imprisonment
Who can give financial assistance?
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
What are distributable reserves?
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
What are undistributable reserves?
Share premium account
Capital redemption reserve
Surplus of accumulated unrealised profits over accumulated unrealised losses
Any reserve prohibited from distributing from
What is the consequence of a wrongful distribution?
Member liable to repay it
What is a debenture?
Written acknowledgement of a debt containing provisions for repayment of capital and interest
Debt unsecured/secured
Long term investments
What is a charge, fixed charge and floating charge?
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
What is the enterprise act?
Allows unsecured creditors to ring fence money
What is the enforcement of charges?
Fixed - grants holder right of enforcement against identified assets
Floating - company or holder appointing liquidator/administrator
What is the effect of insolvency on charges?
Fixed - Secured debt within 6 months before insolvency may be invalid
Floating - Void if made within 12 months before liquidation
What records of charges must be maintained by the company?
Copy of every instrument creating a charge
All fixed and floating charges - names, amounts, description
Kept at office, available for inspection
What records of charges must be maintained by the company registrar?
Prescribed particulars, instrument by which charge created within 21 days starting on day after charge created
Issue certificate of registration
What are the consequences for failing to register charges?
Charge void against liquidator, administrator and creditor
Punishable by fine - period of registration may be extended if failure was inadvertent/ not likely to prejudice
What are the lenders’ remedies for failure to disclose charges?
Unsecured - Apply to court for compulsory winding up
Appoint administrator
Secured - appoint administrative receiver
