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LPC > Equity > Flashcards

Equity Flashcards

1
Q

Ltd company re-registration as plc?

A

s. 755 - Ltd cannot offer shares to public
s. 90 (1) - SR required to register as plc
s. 90(3) - Must also change name and articles

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2
Q

Two two share capital requirements for a plc at registration?

A

1) Min allotted share capital of 50,000: s.91(1)(a) and 763;

2) Must be paid up 1/4 of nominal value and the whole of any premium - s.91(1)(b) and s.586

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3
Q

What docs needed at companies house on conversion?

A

s. 90(1) - Application in the prescribed forms needs:
1. Statement of proposed name
2. Proposed secretary (if none)
3. Statement of compliance with Part 7

s. 94(2) also requires:
4. Copy of SR to re-register
5. Proposed amended articles
6. Copy of balance sheet under s92:

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4
Q

Account requirements for listed company?

A

1) LR 6.1.3R(1)(a) and (b): Audited accounts that cover at least 3 years and are the latest accounts for a period ended not more than 6 months before date of prospectus - New ones will be needed otherwise.
2) LR 6.1.3(c) - If there is a subsidiary, need consolidated accounts

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5
Q

Working capital requirements for listing?

A

LR 6.1.16R - Need to satisfy FCA that company has sufficient working capital for at least 12 months from the date prospectus is published.

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6
Q

Changes required to a ltd company’s Articles?

A
  1. Will need a precedent set of articles which accommodate a plc, model and Table A not appropriate.
  2. Shares must be freely transferable - LR 2.2.4R
    a) No pre-emption on transfer of shares
    b) No shareholder agreements
  3. Eligible for electronic Settlement in CREST - no restrictions in articles and allow shares to be held in electronic form.
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7
Q

5 advantages of flotation?

A
  1. Market for the shares
  2. Higher price due to market liquidity
  3. Access to capital (investor base)
  4. Increased reputation
  5. Incentivise employees with share options
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8
Q

6 disadvantages of flotation?

A
  1. Expensive (7% goes to professional fees)
  2. Board changes required by corp. governance
  3. Loss of control (shares held by institutional investors)
  4. High amount Management’s time
  5. Takeover target
  6. Increased disclosure and reporting requirements for a listed entity (regulatory scrutiny)
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9
Q

What is a regulated market?

A

Defined in FCA handbook - includes Main Market of LSE but NOT AIM.

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10
Q

What is a prescribed market?

A

Defined in FSMA regulations includes Main Market and AIM. Brings within scope of MAR.

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11
Q

What is an RIE?

A

Recognised by the FCA and therefore exempt from the general prohibition in respect of regulated
activities under FSMA. Includes AIM.

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12
Q

Listed/quoted companies?

A

Companies whose shares are listed on the Official List

which only covers Main Market, not AIM

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13
Q

What is a Multi-Lateral Trading Facility?

A

A trading system for buyers and sellers of shares which includes AIM.
(Not Main Market – this is a regulated market)

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14
Q

Comply or explain principle? 4 steps

A

1) Compliance with corporate governance code not compulsory but:
2) LR 9.8.6R (5) - requires listed Company to set out how it has applied with Main Principles section 1 of the CGC.
3) LR 9.8.6(6) - Must state how it has complied during accounting period, or if it hasn’t - reasons for non-compliance with all relevant provisions of CGC.
4) Advisable as institutional investors are more likely to invest in company which has good corporate governance.

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15
Q

Changes to structure - DTR 7 requirements? (3 points)

A

1) DTR 7.2.1 - Corporate Governance Statement
2) DTR 7.2.2 - States which governance code applies ie. UK CGC
3) DTR 7.1.1 and 7.1.3 - Audit Committee (CGC is advisable, DTR 7 is compulsory)

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16
Q

Changes to structure - number/type directors?

A

B.1 - Balance of executive and non-executive
B.1.2 - Smaller companies should have at least 2 non-exec directors, small defined as < FTSE 350 as per note 6.
B.1.1 - Independence requirements

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17
Q

Changes to structure - CEO/Chairman?

A

A.2 - Clear division of responsibility with no individual with unfettered powers
A.2.1 and A.3.1 - Should not be exercised by the same individual AND chairman on appointment should meet independence criteria at B.1.1
A.3.1 - CEO should not go on to become chairman.

18
Q

Changes to structure - Committees?

A

1) Nomination - B.2.1 - Board appointments and recommendations]
2) Audit - DTR 7.1.1 - Mandatory to monitor audit procedures and the system of internal financial controls]
3) Remuneration - D.2.1 - set and monitor level and structure of exec pay.

19
Q

Changes to structure - Notice periods on executive contracts?

A

D.1.5 - one year or less.

  • Advisable that service contracts are entered into.
  • Cannot change existing contracts without employee consent, therefore would have have to explain.
20
Q

Changes to structure - Provisions regarding secretary qualifications?

A

s.273 CA

21
Q

Changes to structure - Admission to trading of shares?

A

LR 2.2.3 - shares must be admitted to trading on an regulated market operated by an RIE.

Application must be made to Main Market of the LSE at the same time application for listing is made to UKLA.

22
Q

Changes to structure - Capital re-organisation provisions?

A

1.) Sub-division of share capital - s.618(1)(a) and (3) via OR.
Divide NAV by number of shares, recommend that it is between £2.00 and 5.00/

[If company wishes to raise capital by issuing new shares]

2) s.551 OR to allot new shares.
3) s.570 - SR to disapply pre-emption rights.

23
Q

Changes to structure - Shareholders (6 points)

A

1) LR 2.2.7 - Min. market capitalisation of £700,00
2) LR 6.1.19(1) - Sufficient number of shares must be distributed to the public at admission in EEA states.
3) LR 6.1.19(3) - A sufficient number is 25%
4) LR 6.1.19(4) - Shares held by a director are not in public hands.
5) LR 6.1.20 - FCA may modify to lower % if it thinks the market will still operate properly
6) LR 6.2.2A - A controlling shareholder of 30% must have a relationship agreement with the applicant to transact at arms length,

24
Q

Obligation to disclose inside information?

A
  1. MAR 17(1) - Must inform public asap via RIS.
  2. Unless MAR 17(4) applies.
  3. Mar 7(1)(a) - Definition of Inside info
    - Precise
    - Not public
    - Relates to issuer
    - Significant effect on share price
  4. Mar 7(4) - Reasonable investor test to assess significant effect.
25
Q

Ability to delay disclosure of Inside Info?

A
  1. Mar 17(1) - General rule to disclose
  2. Mar 17(4) - Issuer’s ability to delay;
    - legitimate interest
    - not mislead the public
    - can ensure confidentiality
  3. Recital 50 - ongoing negotiations are a legitimate interest
26
Q

Records to be kept in relation to inside info?

A

MAR 17(4)

  • Notify FCA in prescribed form of delay once information is released.
  • Provide written explanation if asked
  • Details of date info created, date decision to delay and persons responsible for decision.
27
Q

Disclosure of Inside Info to third parties?

A
  1. MAR 17(8) must make public unless have entered into confidentiality agreement
  2. DTR 2.5.7(2) - Lists of acceptable third parties.
  3. DTR 2.5.9 - Greater amount of recipients the greater the risk
  4. DTR 2.6.3 - Prepare leak announcement
28
Q

Press leak / accurate rumour - disclosure under MAR?

A
  1. Art 17(7)
  2. DTR 2.6.3 - Release holding announcement
  3. DTR 2.2.9 (2) - Contains the info needed.
29
Q

FCA enforcement for breach of disclosure rules of inside info?

A
  1. Request Insider lists (required under MAR 18)
  2. FSMA power for sanctions at s.123(2) and (3), and 122G.
  3. Directors risk of s.2 and s.3 Fraud Act 06 if found to have dishonestly failed to disclose information with the intention of causing loss to others or making a gain for themselves.
  4. Guilty of false or misleading statements or impressions under s.89 and 90 of FSA
  5. Civil liability under s.90A of FSMA provided there are no Sch 10 defences - if investor suffers loss due to delay of disclosure.
30
Q

Insider Dealing - Criminal Offence - 7 Steps (IDIIIDP)

A
  1. Individual - s.52
  2. Deals / Discloses / Encourages - s.52
    3 Insider - s.57
    4.. Insider Information - s.56
  3. Inside Source - 57(2)
  4. Defences - s.53
  5. Penalties - s.61
31
Q

Market Abuse - Civil Offence - 7 Steps (individuals and corporates)

A
  1. Art 14 - Prohibition on insider trading / recommending / disclosing.
  2. Art 8 - Inside dealing
  3. Art 7(1)(a) and 7(4) - Inside info
  4. Art 8 - Possession
  5. Art 10 - Discloses
  6. Art 9 - Legitimate reasons
  7. s.123 FSMA - Consequences
32
Q

What is a PDMR?

A
  1. Art 3(1)(25) - Person discharging managerial responsibilities.
  2. 19(5) - Issuer must notify PDMR of obligations in writing
  3. 19(11) - No dealing in a closed period - 30 calendar days.
  4. 19(12)(a) - Exceptional circumstances
  5. Always do not deal as will be in breach of Art 8(1) MAR and s.52 of CJA
33
Q

PDMR disclosure obligations?

A
  1. 19(1) - Notify issuer of trade within 3 business days of trade
  2. 19(2) - Notify FCA within same time
  3. 19(3) - Issuer then must notify RIS of PDMR disclosure within 3 business days of the trade.
34
Q

DTR 5 disclosure obligations? (over or under 3% threshold - Major SHs)

A
  1. DTR 5.1.1(6) - Round % down
  2. DTR 5.1.2(2) - Check if 3% threshold is triggered.
  3. DTR 5.8.3 - Notify company within 2 trading days
  4. Containing info at DTR 5.8.1
  5. DTR 5.9.1 - Must also notify FCA.
  6. DTR 5.8.12 - Issuer must notify RIS by end of trading day following receipt.
35
Q

Stakebuilding question structure?

A

Work out current and new holdings
Over 30% - Rules 5 and 9 of Takeover Code
Under 30% - Rules 6 and 11

Applicable to both:
Rule 8 - Opening and Dealing Disclosures
DTR 5
CJA / MAR

  • Count towards unconditional to accpetances
  • Does not count towards s.979, shares to which offer relates
  • Rule 11 would have to offer cash
  • Avoid triggering Rule 9 because of restrictions or control.
36
Q

Rule 5 Takeover Code?

A

1) 5.1 - restriction on a person buying shares to bring total over 30%
2) 5.2 - Exception for an individual within any period of 7 days.
3) 5.4 - The person must notify company, RIS and Panel before 12 noon on the following business day.
4) Note to 5.2 - May trigger Rule 9 obligation.

37
Q

Rule 9 Takeover Code?

A

1) 9.1 - Person acquiring >30% must make offer to buy all shares.
2) 9.3 - Offer can only be conditional on receiving more than 50% of voting rights, and
3) 9.2 - Receiving Competition clearance
4) 9.5 - Consideration must be in CASH and Not less than the highest price paid by Offer for shares in the previous 12 months.

38
Q

Rule 6 Takeover Code?

A

Offer minimum level of consideration

  1. 1 (a) - 3 months prior to OP
  2. 1 (b) - During OP but before firm intention
    - Offer same terms but does not have to be cash
  3. 2(a) - After 2.7 but before declared unconditional as to acceptances.
39
Q

Rule 8 Takeover Code?

A
  1. 1 - Disclosure by Offeror (Opening Position Disclosure and Dealing Disclosure)
  2. 2 - Disclosure by Offeree (OPD and DD)

Note 2 to Rule 8:
OPD - 10 b-days after commencement of OP.
DD - Noon the next business day of dealing

40
Q

Rule 11 Takeover Code?

A

When cash offer is required:

1) 11.1(a) - Offeror acquires shares for cash during OP and 12 months prior which represent 10% of the share capital.
2) 11.1(b) - Offeror acquires shares for cash during OP

  • Cash
  • Offer at the highest price
41
Q

Triggers and Types of Announcement

A

1) 2.2(a) Firm Intention = 2.7 Announcement
2) 2.2(b) Rule 9 = 2.7 Announcement
3) 2.2 C/D/E/F = Either 2.8 (No intention) or 2.4.

If 2.4 Talks Announcement, under 2.6 must confirm by 28th day whether 2.7 or 2.8

42
Q

3 ways of structuring takeover?

A
  1. Recommended
  2. Hostile
  3. Scheme

LPC (8 decks)

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