Companies - Raising Finance

Question 1

Who are subscribers?

Answer 1

Persons who have signed the company’s memorandum of association and agreed to purchase a certain number of shares

Question 2

When do directors have the unilateral power to allot additional shares?

Answer 2

If the company has one class of shares and there’s no restriction in the articles (e.g. in the model articles)

Question 3

How do directors gain the right to issue additional shares of a new/different class?

Answer 3

Existing shareholders via ordinary resolution

Question 4

What is a premium and where is it recorded?

Answer 4

Any excess amount received that goes beyond the nominal value of a share

It’s recorded in a separate share premium account

Question 5

What is a pre-emption right?

Answer 5

When issuance of additional shares in exchange for cash only are first offered to existing shareholders

Question 6

How long do existing shareholders have to accept an offer of additional shares under the pre-emption right?

Answer 6

14 days

Question 7

Can the pre-emption right apply to shares issued for non-cash consideration?

Answer 7

No - cash only

Question 8

How can a pre-emption right be disapplied?

Answer 8

By special resolution

Question 9

The right to transfer shares to a third party is governed by the ________. Under the Model Articles, _______ companies grant directors an absolute power to ______ a transfer

Answer 9

articles, private, refuse

Question 10

What are the two main types of loan and what is the difference between them?

Answer 10

1.Unsecured - promise to repay the money borrowed
2. Secured - promise to repay a loan and the right of the lender to take collateral specified in the loan if it’s not repaid

Question 11

What is a mortgage?

Answer 11

A secured loan taken over high value assets, in which title to the asset securing the loan is transferred to the lender, who is given a right to take possession of the asset in the event of default

Question 12

What is a fixed charge?

Answer 12

A loan secured by an interest in an asset the company will hold for a long time (e.g. machinery) which allows the charge holder to sell the asset if the company defaults

Question 13

What is a floating charge?

Answer 13

A loan secured by an interest in a group of assets that change regularly (e.g. stock) which crystallises in the assets on hand if the company defaults

Question 14

The holder of a fixed charge must give _____ for the asset charged to be sold.

An asset charged by way of floating charge can be freely sold until the floating charge _________.

Answer 14

consent

crystallises

Question 15

A floating charge given within what timeframe of the onset of insolvency in exchange for no consideration can be set aside?

Answer 15

12 months

Question 16

How long do companies have to register charges and mortgages at Companies House after their creations?

Answer 16

21 days

Question 17

What happens if a fixed or floating charge fails to be registered at Companies House?

Answer 17

The charge is rendered void against the liquidator/administrator and other creditors

Question 18

For both fixed and floating charges, the charges over the same asset take priority in ____ _____ of their creation

Answer 18

date order

Question 19

A ______ charge will take priority over a _________ charge over the same asset, even if the latter was created before the former

Answer 19

fixed, floating