Equity Finance

Question 1

What is share capital?

Answer 1

The money raised by the issue of shares.

Question 2

What does section 542(1) CA 2006 state?

Answer 2

That shares in a limited company must have a fixed nominal value.

Question 3

What is the issued share capital?

Answer 3

The amount of shares in issue at any time.

Question 4

What is the difference between allotting and transferring?

Answer 4

Allotting is the issuing of new shares.

Transferring is the the transfer of existing shares to another party.

Question 5

When will directors have automatic authority to allot shares?

Answer 5

1) An article gives them authority

2) s550 CA 2006
- one class of share
- issuing shares of that class

Question 6

What happens if the directors do not have authority?

Answer 6

The directors must be authorised to issue the shares by an ordinary resolution of the shareholders.

s551 CA 2006

Question 7

What is a pre-emption right?

Answer 7

A right of existing shareholders to have first refusal on the issue of new shares

Question 8

What is the s561 rule?

Answer 8

The company must offer any ordinary shares that it wants to allot to existing shareholders, in proportion to their current shareholding.

Question 9

When does the s561 rule not apply?

Answer 9

When a company is not allotting equity securities or the consideration for the shares is not solely cash.

Question 10

How do a company dis-apply pre-emption rights?

Answer 10

1) Special resolution of the shareholders.
- s569 (with a s550 right)
- s570 (if a s551 ordinary resolution for authority was required)

2) Special article - s567

Question 11

What is not an equity security?

Answer 11

A share with a cap on the dividend rights AND rights on dissolution of the company.

Question 12

When a company issues new shares, what admin do they need to do?

Answer 12

A copy of the OR giving the director’s authority. - s551(9)

A copy of the SR to disapply the pre-emption rights. - s29 & s30

File Form SH01 within 1 month - s555

Update Register of Members - s113

Issue share certs within 2 months - s769

Keep:
Minutes of GM - s355(2)
Record of director’s decisions (MA 15)
Minutes of BM - s248

Question 13

If a new class of shares is issued, what must the company do?

Answer 13

File a special resolution to change the articles - s29 and s30

File an updated copy of the articles no later than 15 days after the special resolution - s26(1)

Question 14

When will a dividend be paid?

Answer 14

If there are profits available. s830 CA 2006

Question 15

Who recommends that a dividend be paid?

Answer 15

The directors. MA 30

Question 16

What are the 4 types of preference share?

Answer 16

1) Cumulative - dividend payments must be paid to preference shareholders before any can be paid to dividend shareholders.

2) Non-cumulative - unpaid dividends will not carry over to the following year.

3) Participating - right to receive an additional share of the company’s profits on top of a fixed dividend.

4) Convertible - the dividend may be exchanged for ordinary shares at a specified price.

Question 17

What is a share cap and how do you deal with one?

Answer 17

A limit on the number of shares that can be issued.

Companies incorporated under CA 1985 - ordinary resolution.

Companies incorporated under CA 2006 - will not have one. If they have chosen to include one, articles must be amended under s21 CA 2006.

Question 18

What is a confirmation statement?

Answer 18

Since July 2016, companies have been required to file an annual confirmation statement that stated the company has filed all necessary returns in the previous 12 months. It also sets out any changes to share capital.