Companies: Finance

Question 1

What are the 2 classes of shares?

Answer 1

• ordinary

- preference

Question 2

Describe ordinary shares

Answer 2

• equity shares
• full voting rights
• dividend declared by directors
• last repaid but share surplus of assets

Question 3

Describe preference shares

Answer 3

• cumulative dividends paid first
• fixed rate dividend
• usually issued with priority rights which allow capital to be repaid before ordinary shareholders

Question 4

Key thing to remember on classes of shares?

Answer 4

Both classes have same rights without intervention of articles, check wording of question

Question 5

Do companies need to issue their entire share capital?

Answer 5

No

Question 6

What are redeemable shares?

Answer 6

• Include a term for company to buy back at a fixed rate

- can only be issued when non-redeemable shares are in circulation

Question 7

What are class rights?

Answer 7

Special rights attached to each class of shares

Question 8

Can class rights be changed?

Answer 8

• need special resolution
• courts may cancel change if unfairly prejudicial and 15% of shareholders appeal (does it change their rights or just their money)

Question 9

What authority do directors require to allot shares?

Answer 9

• articles, or

- ordinary resolution

Question 10

Describe pre-emption rights

Answer 10

• shareholders must be offered new shares first
• statutory right if equity shares are issued
• articles can dis-apply rights

Question 11

Can shares be issued at a premium and/or a discount?

Answer 11

• premium yes

- discount no

Question 12

Can private companies accept cash alternative payments for shares?

Answer 12

Yes, determined by directors

Question 13

What are the share payment rules for public companies?

Answer 13

• must pay cash
• cannot pay by way of work or services
• nominal value 25% paid up + all share premium
• non-cash consideration independently valued and received within 5 years

Question 14

How are shares transferred?

Answer 14

• can be transferred freely in line with articles
• CREST for listed shares only
• transfers due to bankruptcy do not require new certificate

Question 15

What is the procedure for reduction of share capital for a public company?

Answer 15

• special resolution
• court confirmation
• if nominal value below £50k, re-register as private
• new statement of capital
• resolution, confirmation and statement of capital to be filed

Question 16

What is the procedure for reduction of share capital for a private company?

Answer 16

• special resolution
• solvency statement
• new statement of capital
• resolution, solvency statement and statement of capital to be filed

Question 17

Why might a company be allowed to acquire its own shares?

Answer 17

• lawful reduction of capital
• court order
• forfeiture of shares

Question 18

What does a company need to do to redeem its shares?

Answer 18

• must cancel them
• must be non-redeemable in circulation
• must be funded by non-distributable profits

Question 19

When can financial assistance for purchase for own shares be given?

Answer 19

• if it is a permitted transaction (e.g. money lending company in course of business, employee share scheme, loan to employee in good faith)
• main purpose of transaction is not to fund the purchase of shares

Question 20

What must dividends be paid out of and how is it calculated?

Answer 20

Must be paid out of distributable profits:

Accumulated realised profits less accumulated realised losses

Question 21

Debenture…

Answer 21

• document acknowledging any loan
• creates a creditor
• contractual right to interest

Question 22

What are the two types of security charges given with debenture debt?

Answer 22

• fixed

- floating

Question 23

Describe a fixed charge

Answer 23

• relates to specific asset
• company has no freedom to sell
• higher priority than floating charges

Question 24

Describe a floating charge

Answer 24

• on a class of assets present and future
• company has freedom to sell
• attaches to assets on crystallisation