Company Financial Structure

Question 1

Legal nature of a share?

Answer 1

Share is a form of personal property (s 541 CA)
Shareholders are not part-owners of the company (Short v Treasury)
By owning shares, shareholders acquire rights in the company e.g. right to receive dividends, right to vote at general meetings

Question 2

Ordinary shares

Answer 2

1 vote per share
Shareholder receives a dividend in an equal amount per share as all other shareholders of the same class (if they do receive dividends)

Question 3

Preference shares

Answer 3

Entitle shareholders to a fixed dividend
Shareholder is guaranteed the receipt of a dividend of a given amount
Common not to carry any voting rights

Question 4

Nominal (or authorised) capital

Answer 4

amount of share capital that company is authorised to issue (not necessarily the same as what it has actually issued)

Question 5

Issued (or allotted) capital

Answer 5

Amount of company’s nominal capital that has actually been issued/allotted to shareholders

Question 6

Difference between share being ‘allotted’ and share being ‘issued’

Answer 6

Allotted: when company + shareholder have agreed contractually to issue + acquire those shares
Issued: when shareholder’s ownership of that share is registered by the company

Question 7

Paid-up capital

Answer 7

Part of the issued capital that has actually been paid up by shareholders
Includes nominal value of shares + any premium

Question 8

How can companies acquire capital?

Answer 8

Raise debt: by ordinary loans or bonds (investors lend money in return for payment of interest during life of bond + repayment of capital sum at the end of life of bond)
Issue shares: no legal obligation for company to pay anything to shareholder (lower risk)

Question 9

What is a dividend?

Answer 9

Form of distribution of assets by company to shareholders (payment to shareholders)
Usually cash, can be additional shares

Question 10

How does the company pay dividends?

Answer 10

Only out of profits available for that purpose (s 830 CA)

Question 11

Section 831 CA 2006

Answer 11

After payment of dividend, net assets of public companies must still exceed its share capital + capital reserves

Question 12

Can shares be issued at a discount?

Answer 12

Shares may not be issued at a discount of their nominal value (s 580 CA)
Ooregum Gold Mining Co v Roper

Question 13

Why would companies want to reduce their share capital?

Answer 13

To pay dividends
Return surplus capital to shareholders

Question 14

How can companies reduce its share capital?

Answer 14

Any limited company can do so by special resolution if confirmed by the court
Private limited company can do so by special resolution supported by a solvency statement

Question 15

Section 642(1) CA 2006

Answer 15

Solvency statement must be made by all directors within 15 days of the date on which special resolution is passed

Question 16

Section 642(2) CA 2006

Answer 16

Where special resolution is written: copy of solvency statement must be sent to every eligible member at/before time the proposed resolution is sent to them

Question 17

Section 642(3) CA 2006

Answer 17

Where special resolution is passed at general meeting: copy of solvency statement must be made available for inspection by members throughout meeting

Question 18

Section 642(4) CA 2006

Answer 18

Validity of special resolution is not affected by failure to comply with these requirements

Question 19

Section 643 CA 2006

Answer 19

Solvency statement must state that each of the directors has formed the opinion, taking into account all of the company’s liabilities

Question 20

Section 643(4) CA 2006

Answer 20

if directors make solvency statement without having reasonable grounds for opinions expressed in it + statement is delivered to Registrar, every director commits an offence

Question 21

Section 643(5) CA 2006

Answer 21

Penalties for director’s committing offence under s 643(4) CA 2006

Question 22

Section 644 CA 2006

Answer 22

Filing requirements for capital reduction

Question 23

Section 644(4) CA 2006

Answer 23

Special resolution does not take effect until documents are registered

Question 24

Sections 645-646 CA 2006

Answer 24

Specifies procedure for making application for an order confirming the reduction including creditors’ right to object

Question 25

Section 648(1) CA 2006

Answer 25

Court may make an order on such terms + conditions as it thinks fit

Question 26

Section 648(2) CA 2006

Answer 26

Court will not confirm the reduction unless it is satisfied that each creditor’s consent to reduction has been obtained or their debt/claim has been discharged or secured

Question 27

Section 650 CA 2006

Answer 27

If reduction of public company’s capital has effect of bringing nominal value of its allotted share capital below authorised minimum (£50k), registrar must not register court order confirming reduction unless court directs so or company is re-registered as a private company

Question 28

Can companies buy back their own shares

Answer 28

No (Trevor v Whitworth), s 658 CA 2006

Question 29

Section 659 CA 2006

Answer 29

4 exceptions to general rule that limited companies cannot buy back its own shares

Question 30

What are redeemable shares?

Answer 30

Shares which are to be redeemed or are liable to be redeemed at the option of the company or shareholder

Question 31

Section 684(1) CA 2006

Answer 31

Limited companies can issue redeemable shares

Question 32

Section 684(2) CA 2006

Answer 32

Private limited companies: articles may exclude/restrict issuing of redeemable shares

Question 33

Section 684(3) CA 2006

Answer 33

Public limited companies: must be authorised by articles to issue redeemable shares

Question 34

Section 690 CA 2006

Answer 34

Company may purchase its own shares if it does so in accordance with the statutory procedure + there is no restriction in its articles

Question 35

What is financial assistance?

Answer 35

When a company provides value (directly or indirectly) to enable someone else to become a shareholder in that company
Definition in s 677 CA 2006

Question 36

What is the effect of financial assistance?

Answer 36

Company’s capital is reduced by transferring money/other assets to acquire shares or by increasing number of shares that are nominally in issue without increasing amount of money being brought into company

Question 37

Section 678(1) CA 2006

Answer 37

Financial assistance in relation to public companies or their subsidiaries is prohibited