equity finance

Question 1

Issued share capital

Answer 1

made up of subscriber share + further shares issues

Question 2

allotedshares

Answer 2

When a person acquires the unconditional right to be included the company’s register of members in respect of those shares

Question 3

issued shares

Answer 3

shares only forms part of companies once the member has been registered in the company’s register, and their title is complete.

full legal title= when persons name is entered in the register of members

Question 4

paid up share capital
called up share capital

Answer 4

paid up share capital= amount paid for share

called up share capital= outstanding, can be called any time

Question 5

Treasury shares
will pre- emption rights apply?

Answer 5

share that are bought back by the company

NOTE: although such a sale of shares is a transfer, not an issue, of shares, s 561 CA 2006 pre-emption rights and s 573 CA 2006 disapplication of pre-emption rights will apply.

The company can choose to cancel treasury shares at any time or transfer them to an employee share scheme.

Question 6

Treasury shares
will pre- emption rights apply?

Answer 6

share that are bought back by the company

NOTE: although such a sale of shares is a transfer, not an issue, of shares, s 561 CA 2006 pre-emption rights and s 573 CA 2006 disapplication of pre-emption rights will apply.

The company can choose to cancel treasury shares at any time or transfer them to an employee share scheme.

Question 7

ordinary shares

Answer 7

• voting right
• unrestricted dividend
• portion of surplus on winding up

Question 8

Prefence share

Answer 8

priority for dividends or capital when winding up

normally:
- no vote
- no surplus

Question 9

Cumulative preference share

Answer 9

• if dividend is not declared for a particular year, the right to the preferred amount is carried forward and will be paid together with other dividends due , when there are available profits

Question 10

Prefence share

Answer 10

priority for dividends or capital when winding up

normally:
- no vote
- no surplus

assume cumulative unless stated otherwise

Question 11

Participating preference shares

Answer 11

Participating’ preference shareholders may participate, together with the holders of ordinary shares in:

(1) in surplus profits available for distribution after they have received their own fixed preferred dividend; and/or

(2) in surplus assets of the company on a winding up.

Participating preference shares can be ‘fixed rate participating cumulative preference shares’

Disadvantage if non-participating: if the value of the company increases, the preference shareholder will not have the benefit of receiving more dividends as the rate is fixed by the price pai

Question 12

Deferred shares

Answer 12

Carry no voting rights and no ordinary dividend but are sometimes entitled to a share of surplus profits after other dividends have been paid (presuming there is a surplus); more usually ‘deferred’ shares carry no rights at all and are used in specific circumstances where ‘worthless’ shares are required

Question 13

Redeemable shares

Question 14

Convertible shares

Question 15

Convertible shares

Question 16

Redeemable shares

Answer 16

• company will/ may buy back or cancel in future

Question 17

Convertible shares

Answer 17

carry option to convert into difference class of share according to stipulated criteria

Question 18

Deferred shares

Answer 18

• no voting rights and - no ordinary dividend

sometimes entitled to a share of surplus profits after other dividends have been paid (presuming there is a surplus);

usually ‘deferred’ shares carry no rights at all and are used in specific circumstances where ‘worthless’ shares are required

Question 19

Preference share

Answer 19

priority for dividends or capital when winding up. Higher priority than ordinary shares

• The amount of preferred dividend is expressed as a percentage of the par (nominal) value of the share. Example: 5% £1 preference shares give an entitlement to 5% of £1 per share (which equates to 5p per share) of dividend each year provided a dividend is declared. Note this can also be a fixed percentage of the entire subscription price with the premium.

normally:
- no vote
- no surplus

assume cumulative unless stated otherwise

Question 20

Procure for varying class of rights

Answer 20

• involves amending articles
• check os articles contain provisions for altering

if not variation can be done by:
- written consent of 75% of SH in that class
- By SR passed at a GM of holders of that class

BASICALLY SR WRITTEN OR AT GM BY THAT CLASS

Question 21

Procedure to cancel variation

Answer 21

• shareholders holding 15% of relevant shares apply to court within 21 days of resolution. These SH could not have voted in favour of resolution
• variation cannot take effect until confirmed by court
• court cannot confirm the variation if it feels that the variation unfairly prejudices the

Question 22

When is dividend paid?

Answer 22

only payable if there are sufficient distributable profits s830 (1) CA 2006

‘Distributable profits’ means the company’s accumulated realised profits minus its accumulated realised losses

Question 23

What are two types of dividend

Answer 23

• final dividends
• interim dividends

Question 24

Final dividends

Answer 24

• Directors give the recommendation to the shareholders

-shareholders can reject or approve the recommendation

• If they approve, an ordinary resolution is needed to declare the final dividend

-Shareholders cannot declare a dividend higher than what the board recommended (but can be lower)

• Dividends can only be declared from realised distributable profits
• and it is then approved by an ordinary resolution of the shareholders following the financial year end.

Question 25

Interim dividends

Answer 25

The articles of a company normally give the directors the power to decide to pay interim dividends if the company has sufficient distributable profits (MA 30 allows this).

Interim dividends can be paid without the need for an ordinary resolution of the shareholders. Interim dividends are often paid where the company has realised an investment.
 

Question 26

allotment

Answer 26

company issues new shares , in return for the purchaser paying the subscription price

Question 27

transer

Answer 27

existing shares transferred between shareholder and the purchaser

Question 28

restriction on private companies offering shares to public, what does public mean

Answer 28

A PL by shares is prohibited from offering shares to public, can only offer to targeted investors.

Public does not include: existing SH, employees, certain family members of those persons, shares under employees share scheme

Question 29

Financial promotions

Answer 29

Any invitation or inducement

financial promotions are prohibited unless certain FSMA are fulfilled - s21 FSMA

Question 30

what are two common restrictions on the transfer of shares

Answer 30

• Directors refusal
• right of first refusal- shareholder wishing to sell shares must offer them to an existing shareholder first

Question 31

procure of transfer

Answer 31

stock transfer from, signed by transferor and submitted with share certificate to new shareholder

beneficial ownership- passes on execution of stock transfer from

legal title- transfers on registration of member

new certificate sent within 2 months of registration

Question 32

Deferred shares

Answer 32

• no voting rights and - no ordinary dividend

sometimes entitled to a share of surplus profits after other dividends have been paid (presuming there is a surplus);

usually ‘deferred’ shares carry no rights at all and are used in specific circumstances where ‘worthless’ shares are required

Question 33

Convertible shares

Answer 33

carry option to convert into difference class of share according to stipulated criteria

Question 33

procedure for allotting new shares

Answer 33

1. check share cap
   1985- OR 2006- SR
2. check authority

PL- can allot same without OR

Other companies need OR

3. pre-emption rights Are the shares equity securities? If both dividend and pay-out are capped, the share is not an equity security and therefore pre-emption rights are not relevant. If the shares are equity securities, consider whether the company needs to disapply pre-emption rights
4. new class of shares? AOA
5. Board will resolve to allot

Question 33

ordinary shares

Answer 33

• voting right
• unrestricted dividend
• portion of surplus on winding up

Question 33

Procure for varying class of rights

Answer 33

• involves amending articles
• check os articles contain provisions for altering

if not variation can be done by:
- written consent of 75% of SH in that class
- By SR passed at a GM of holders of that class

BASICALLY SR WRITTEN OR AT GM BY THAT CLASS

Question 33

Participating preference shares

Answer 33

Participating’ preference shareholders may participate, together with the holders of ordinary shares in:

(1) in surplus profits available for distribution after they have received their own fixed preferred dividend; and/or

(2) in surplus assets of the company on a winding up.

Participating preference shares can be ‘fixed rate participating cumulative preference shares’

Disadvantage if non-participating: if the value of the company increases, the preference shareholder will not have the benefit of receiving more dividends as the rate is fixed by the price pai

Question 33

Cumulative preference share

Answer 33

• if dividend is not declared for a particular year, the right to the preferred amount is carried forward and will be paid together with other dividends due , when there are available profits

Question 33

Preference share

Answer 33

priority for dividends or capital when winding up. Higher priority than ordinary shares

• The amount of preferred dividend is expressed as a percentage of the par (nominal) value of the share. Example: 5% £1 preference shares give an entitlement to 5% of £1 per share (which equates to 5p per share) of dividend each year provided a dividend is declared. Note this can also be a fixed percentage of the entire subscription price with the premium.

normally:
- no vote
- no surplus

assume cumulative unless stated otherwise

Question 33

Redeemable shares

Answer 33

• company will/ may buy back or cancel in future