Equity Finance Flashcards
What rare the 2 finance options for companies?
Equity finance
Debt finance
What is allotment of shares
When a company decides to create shares and give them to existing shareholder, or a new shareholder, in return for payment.
What is share transfer?
Where the shareholder sells or give shares to another shareholder or a new shareholder
What is buyback?
Where the company buys back some of its own shares from one or more shareholders.
Reverse of allotment
What is common about all methods of equity finance?
They are al involve the percentage shareholding of at leases one shareholder to change.
What is s 558 CA
A company altos shares when a person acquires the unconditional right to be included in the companys register of members in respect of the shares
What are the 3 questions that you must consider when working out if you can allot shares?
Are there any constitutional restrictions on allotment?
Do the directors have authority to a lot shares
Are there any pre-emption rights?
When do you need to check if there are constitutional restrictions on allotment?
I companies were incorporated BEFORE OCtober 2009.
The company’s memorandum of association always contained an UPPEr LIMIT on the number of shares a company could have - ASC>
When CA 2006 cam einto force, the ASC clause was transferred to companies articles, and can be removed by ordinary resolution.
What is an ASC clause?
Authorised share capital clause
Pre CA 2006, was transferred into articles of association.
Can the ASC clause be removed?
YES< it can be removed from the articles by ORDINARY RESOLUTION, which is different to usual. A copy of this must be filed.
How do you check if directors have the authority to allot shares?
Either board decision or shareholder decision.
Private company with 1 class of shares: have authority to allot shares without the permission of shareholders, under s 550 IF incorporated under CA 2006.
If incorporated BEFORe 2006, shareholders must pass ordinary resolution to activate this s 550 section.
What is s 550 CA
Authority to allot shares without permission from shareholders
What is s 551 authority to allot shares?
Directors of public companies, or private companies with MORE THAN 1 CLASS OF SHARES before or after allotment, MUST obtain the permission of the company’s shareholders before they can allot shares.
This authority will expire 5 years from date of ordinary resolution
Under s 551, when will authority to alot shares expire?
5 years after date of ordinary resolution
What is an alternative to s 551 which means you dont have to keep renewing it?
Can include it in the articles of association from incorporation. Ordinary resolution (EXCEPTION)
What are pre-emptive rights?
Rights of first refusal over shares which are being allotted.
What is s 561 CA?
Company must not a lot “equity securities” to a person, UNLESS it has fist offered them to existing holders of ordinary shares in teh company, on the SAME or MORE FAVOURABLE terms.
What does equity securities mean
It includes ordinary shares and the right to subscribe for, or to covert, securities into ordinary shares int eh company
Basically a way to maintain your shareholding int eh compan
Hwo long is the period of acceptable of the offer to pre-emptive rights to shares?
Cannot be less than 14 days.
what are the exemptions to pre-emotive rights?
They do not apply in relation to allotment of bonus shares, if wholly or partly non-cash, r if shares are to be held under, allotted or transferred, pursuant to an employee share scheme.
Can private companies EXCLUDE pre-emotive rights for article?
Yes, CA allows private companies to exclude them.
This will OVERRIDE the statutory provisions.
Therefore, alwasy check if they have been excluded from articles.
How can companies disapply pre-emptive rights?
By SPECIAL RESOLUTION.
How can private companies with more than 1 class of shares, disapply pre-emptive rights?
Special resolution, BUT must be recommended by the directors of the compay and before proposing a special reoslution.
What must be included in a written statement to propose disapply pre-emptive rights in a private company with multiple shares?
Reasons for making recommendation
Amount the purchaser will pay
Directors justification of that amount
What are the administration requirements for allotment of shares?
Copies of resolution sent to companies house, 15 days (all special resolutions, any ordinary reoslutions that remove authorised share capita, any ordinary reoslutions that activate s 550,)
Company forms to be sent to companies house (return of allotment and statement of capital)
Entries into company sown register within 2 months
What forms must be filed to companies house after the allotment of shares?
SH01, return of allotment and statement of capita, within 1 month of allotment
Possible PSC for new PSC.
Does transfer of share change amount of shares?
No, the total number of shares does not change, but one or ore of the sahreholders percentage shareholding’s changes.
How are shares transferred?
Must complete and sign a stock transfer form, and give it too the transfere, along with share certificate relating to the shares.
If the sale price of the shares is over ,000, buyer must pay stamp duty on stock transfer form. None is payable if shares are a gift.
What must the company do to transfer shares, once the shareholders has filled out all forms?
Send the new shareholder a new share certificate in their name within 2 months
Enter name on register of member within 2 months
Notify the registrar of companies of change in ownership of shares - CS01
What is CS01?
Notify registrar of companies of change in ownership of shares, when company files its annual confirmation statement
Transfer of shares
When is the transmission of shares an automatic process?
If a shareholder dies, their shares automatically pass to their personal representatives, or
If a shareholder is made bankrupt, their shares automatically vest in their trustee in bankruptcy
What is the companys share captial?
This is the money provided by shareholders, in returns for shares.
Can the share capital be used/reduced?
No, because it is the fund which editors look to for payment of debts owed to them. So paid up share capital cannot be returned to shareholders, and their liability with regards to any capital they have not paid on their shares must not be reduced.
Where can dividends be paid from?
Dividends cannot be paid out of capital, just out of distributable profits,
The company must not generally purchase its own shares.
What are exceptions to the principle of share capital?
A company can buy back its own shares, following a specific procedure
A company can purchase its own shares under a court order, to buy out an unfairly prejudiced minority shareholder
A compay can return capital to shareholders, after payment of companys debts, in winding up.
Why might a company want to buy ack its own shares?
If shareholders want to cut all ties, but cannot find a purchaser fr the shares.
What must directors consider when buying back shares?
If it will be good for the company in the long run - s 172 CA.
Skill, care, s 174
How do you buy back shares?
Off market purchases:
Companys articles must not forbid buyback
Shares must be fully paid
Company must pay for the sahres at the time of purchase
Shares must be paid for out of DISTRIBUTABLE profit, or proceeds of fresh issue of shares.
Shareholders must pass ordinary resolution authorising buyback contract
Copy of contract must be available for inspection for 15 days before general meeting
After completion of buyback, what must be done?
File return of purchase of own shares and notice of cancellation of shares within 2 days of completion
Keep copy of contract at registered office for 10 years.
What happens if the company does not have enough money to buy back shares?
It may be as an asset and not as cash.
Can buy back out of capital, but certain requirements must be met
How can companies buyback out of capitaL?
Permitted to , uNLESSS companys articles for it them to. Must exhaust distributable profits before.
PUBLIC companies are not alowed to.
What are the requirements specific to buyback out of capital?
Companys directors must make a statement of solvency, no sooner than 1 week before general meeting, stating that the company is solvent and it will remain solvent during year following buyback
Statement of solvency must have annexed to it an auditors report
Payment out of capital must be approved by SPECIAL RESOLUTION.
Withi I 7 days of special resolution, company must put notice in London Gazette.
Company must file a copy of the directors statement and auditors report
Must be kept until 5 weeks after passing of special resolution, at registered office
What are the time limits after buyback for administrative purposes?
Keep minutes/written reoslution for 10 years
Creditors rights to object - 5 weeks after SR
Keep SS and AR at companys registered office, 5 weeks from date of SR
Place notices in London Gazette - within 1 week of SR
File SS and AR at companies house befoer fist publication
File SR within 15 days of GM
What are dividend?
Shareholders recieve dividend. A company can pay a dividend if it has profits available for that purpose.
