Company Law: Share and Loan Capital

Question 1

True or false, a company cannot simply return share capital to its shareholders?

Answer 1

True

Question 2

True or false, proceeds from share issues must be set aside and used to pay shareholders in the event of the company becoming insolvent?

Answer 2

False

Question 3

True or false, dividends must only be paid from distributable profits available for the purpose?

Answer 3

True

Question 4

True or false, share capital may be returned to the shareholders following an approved reduction of capital scheme?

Answer 4

True

Question 5

True or false, what kind of resolution is required to approve a buy-back of company shares?

Answer 5

A special resolution for approving the payment of capital is required, with no special notice

Question 6

How may an unlawful dividend be reclaimed?

Answer 6

Only by the company from members who knew them to be unlawful

Question 7

What is a fixed charge?

Answer 7

A charge over specific company property which prevents the company from dealing freely with the property in the ordinary course of business

Question 8

What is interest payments to debenture holders paid out of?

Answer 8

Pre-tax profit or loss for the period

Question 9

S.128 TGCA 1992 provides a rule for working out the cost of a shareholding where there has been a reorganisation of share capital and a person pays for their new holding of shares. Which type of reorganisation does this provision apply to?

Answer 9

A rights issue of shares

Question 10

What is a floating charge?

Answer 10

A charge over a class of company assets which enables the company to deal freely with the assets in the ordinary course of business

Question 11

What are dividend payments paid out of?

Answer 11

Distributable profits, post-tax

Question 12

True or false, the paid-up share capital of a company is s much of the nominal value of shares that has been paid by shareholders in respect of the company’s issue share capital only?

Answer 12

True

Question 13

True or false, a company may not issue its shares for less than the nominal value?

Answer 13

True

Question 14

True or false, a company can never have allotted share capital higher than issued share capital?

Answer 14

False

Question 15

When a company reaches a certain predetermined target, what do convertible shares convert into?

Answer 15

Ordinary shares

Question 16

Saffy Ltd has total share capital of 3,000 shares. These are made up of 1,000 £1 ordinary shares and 2,000 5% preference shares (nominal value £1 each share).

1,000 of the preference shares were only issued this year.

Last year the Accounts showed a loss and as there were no accumulated distributable profits shareholders did not receive a dividend. This year has seen a turnaround by new management and distributable profits are now £100,000.

What dividend will be paid out to the preference shareholders this year, if the dividend is cumulative?

Answer 16

£150 - last year’s dividend of £50 is carried forward to this year and added to the £100 for this year

Question 17

True or false, a private company may grant a fixed charge but not a floating charge?

Answer 17

False

Question 18

True or false, a floating charge attaches to an asset when it crystallises?

Answer 18

True

Question 19

True or false, cessation of the company’s trade would crystallise any floating charges?

Answer 19

True

Question 20

What is the definition of distributable profits?

Answer 20

Accumulated realised profits less accumulated realised losses

Question 21

What is a dividend in specie?

Answer 21

A dividend that is not paid in cash

Question 22

If a company pays a dividend without having sufficient distributable profits, who may have to make good the unlawful distribution?

Answer 22

Both the directors and shareholders

Question 23

Kauf Ltd is planning to buy back some of its own shares using a permissible capital payment. The appropriate special resolution was passed today. What must happen?

Answer 23

A notice needs to appear in the London Gazette
The directors need to issue a statement

Question 24

True or false, if a plc gifts money to a person who has already purchased shares in it, this can never constitute financial assistance?

Answer 24

False

Question 25

True or false, loans made in the normal course of a company`s business cannot constitute financial assistance?

Answer 25

True

Question 26

Why is a company required to maintain a creditors’ buffer?

Answer 26

Because a company has an obligation to safeguard the interests of its creditors

Question 27

True or false, a debenture is a type of loan?

Answer 27

True

Question 28

True or false, a debenture holder will always have a charge over a company’s assets?

Answer 28

False

Question 29

What is a rights issue?

Answer 29

It is a type of reorganisation of share capital where shares are offered to existing shareholders and they purchase the additional shares