Company Law Part 2- Capital And Financing Flashcards
1
Q
What are the definitions of the types of share capital?
A
- Issued= share capital that has been issued, released or sold by a company
- Paid up= the amount paid by shareholders on the shares issued
- Called up= the amount of unpaid share capital called for but not paid
- Uncalled= the amount of unpaid share capital not yet called for
- Bonus issue= company’s reserves used to issue fully paid shares to shareholders in proportion to their shareholding
- Rights issued= new shares offered to existing shareholders in proposition to their shareholding at discount to market place
2
Q
Advantages of loan capital (debenture)
A
- interest tax deductible
- no dilution of voting control
3
Q
Disadvantages of loan capital (debenture)
A
- interest payable irrespective of profits
4
Q
Loan capital (debentures)
A
- Debenture is a document by a company containing an acknowledgement of its indebtedness
- Debenture is a creditor of the company and has no voting rights
- Debenture has a contractual right to interest, irrespective of the profits
- Debenture has priority with respect to repayment
- Capital does not need to be maintained
5
Q
Share capital (ordinary shares)
A
- A share is the interest of a shareholder in a company measured by a sum of money
- Has voting rights depending on class of share held
- Dividends depend on the availability of profits
- Depending on the type of share
- Capital must be maintained
6
Q
Fixed charge
A
- Fixed charge has a legal mortgage on a specific asset which prevents the company dealing with the asset without the consent of the mortgage
- A fixed charge has these three main characteristics
- is on an identified asset (land)
- the asset is intended to be retained permanently on the business
- the company has no general freedom to deal with assets - No fixed charges over inventory/stock
- If company do not keep up with interest payments on the debt then the fixed holder can appoint a receiver to sell off the asset to get money owed
7
Q
Floating charge
A
- Floating charge does not attach to any particular asset until crystallisation
- Crystallisation means the company can no longer deal freely with the assets (liquidation, when a company ceases to carry on business)
- Security is provided by all the property owned by the company
- Company can deal with own property without approval of debenture holders
- If company commits acts of default, the floating charge crystallises
8
Q
What is the priority of charges
A
- Equal charges- first created has priority
- Fixed charges have priority over floating charge
- An unregistered registrable charge has no priority over a registered charge
- Can prohibit creation of a later charge with priority- notice of prohibition
9
Q
Registration of charges
A
- Notify registrar within 21 days of creation
- Failure to register results in…
- charge void against liquidator
- holder of the charge loses their priority
- fine on company and every officer in default
- money secured becomes immediately repayable - The company or charge holder can register
10
Q
Issuing shares- authority
A
- the directors need authority in order to allot shares
- this may be given by the articles or by passing an ordinary resolution
- the authority must state the maximum number of shares to be allotted and the expiry date for the authority (max 5 years)
11
Q
Issuing shares- issues at a premium
A
Requires any premium to be created to a share premium account which may only be used for…
- writing off expenses of the issue
- writing off any commission paid on the issue
- insuring bonus shares
12
Q
Issuing shares- issue at discount
A
- can’t issue shares at a discount on Nominal Value
- breach= issue still valid but allottee must pay up the discount and interest
- can’t issue debentures at a discount if they don’t have an immediate right to convert to shares
13
Q
Issuing shares- paying for shares (public company)
A
- subscribers must pay cash for their subscription shares
- payment for shares must not be in the form of work or services
- shares cannot be allotted until at least 1/4th Nominal Value and whole premium has been paid
- non cash consideration must be received within 5 years
- non cash consideration must be independently valued
14
Q
Class rights
A
- Special rights attached to each class of shares
- The procedure for varying class rights depends upon whether any procedure is specified in the articles
- bonus issue is not a variation of class rights
- subdivision of shares is not a variation of class rights - Minority protection
- Holders of 15% of nominal value of a class, who didn’t consent to the variation, may ask the court to cancel the variation within 21 days of passing the resolution
15
Q
If specified=
Not specified=
A
- procedure set out in article must be followed
- variation needs special resolution or written consent of 75% in nominal value of the class
