Company Financial Structure Flashcards
Legal nature of a share?
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
Ordinary shares
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)
Preference shares
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
Nominal (or authorised) capital
amount of share capital that company is authorised to issue (not necessarily the same as what it has actually issued)
Issued (or allotted) capital
Amount of company’s nominal capital that has actually been issued/allotted to shareholders
Difference between share being ‘allotted’ and share being ‘issued’
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
Paid-up capital
Part of the issued capital that has actually been paid up by shareholders
Includes nominal value of shares + any premium
How can companies acquire capital?
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)
What is a dividend?
Form of distribution of assets by company to shareholders (payment to shareholders)
Usually cash, can be additional shares
How does the company pay dividends?
Only out of profits available for that purpose (s 830 CA)
Section 831 CA 2006
After payment of dividend, net assets of public companies must still exceed its share capital + capital reserves
Can shares be issued at a discount?
Shares may not be issued at a discount of their nominal value (s 580 CA)
Ooregum Gold Mining Co v Roper
Why would companies want to reduce their share capital?
To pay dividends
Return surplus capital to shareholders
How can companies reduce its share capital?
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
Section 642(1) CA 2006
Solvency statement must be made by all directors within 15 days of the date on which special resolution is passed
Section 642(2) CA 2006
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
Section 642(3) CA 2006
Where special resolution is passed at general meeting: copy of solvency statement must be made available for inspection by members throughout meeting
Section 642(4) CA 2006
Validity of special resolution is not affected by failure to comply with these requirements
Section 643 CA 2006
Solvency statement must state that each of the directors has formed the opinion, taking into account all of the company’s liabilities
Section 643(4) CA 2006
if directors make solvency statement without having reasonable grounds for opinions expressed in it + statement is delivered to Registrar, every director commits an offence
Section 643(5) CA 2006
Penalties for director’s committing offence under s 643(4) CA 2006
Section 644 CA 2006
Filing requirements for capital reduction
Section 644(4) CA 2006
Special resolution does not take effect until documents are registered
