Equity Finance

Question 1

What is the meaning of nominal par value vs. Premium?

Answer 1

Any share allotment without a fixed nominal value is void.

Nominal value represents a unit of ownership, rather than the value of a share.

Common nominal values - 1p, 5p or £1

Premium - the excess over nominal value for which a share is issued.

Question 2

Definition of issued share capital:

Answer 2

The amount of shares in issue at any one time. Shown in the company’s balance sheet in its accounts.

Question 3

What are allotted shares?

Answer 3

Shares are said to be allotted when a person acquires the unconditional right to be included in the company’s register of members with respect to those shares.

Question 4

Definition of paid-up share capital:

Answer 4

The amount of capital paid on shares. It is not necessary for shareholders to pay the full amount due on their shares immediately.

Question 5

Ordinary shares:

Answer 5

Most common form of share and the default position. They carry a right to vote in GMs, a right to a dividend if one is declared (after preference shareholders), a right to a portion of any surplus assets of the company on a winding-up.

Question 6

Preference shares:

Answer 6

Give the holder a preference as to payment of a dividend or to a return of capital on a winding-up of the company (or both).

Question 7

Preferred shares and dividends:

Answer 7

The amount of preferred dividend is usually expressed as a % of the nominal value of the share e.g. 5% £1 preference shares.

= 5p per share by way of dividend

Question 8

Cumulative preference shares:

Answer 8

It is presumed that a preference share is cumulative unless otherwise stated.

If a dividend is not declared for a particular year, the right to the preferred amount on the share is carried forward.

Question 9

What are participating preference shares?

Answer 9

Give the right to:
Participate in surplus profits and/or surplus assets.

Question 10

What are deferred shares?

Answer 10

These carry no voting rights/no ordinary dividend but are sometimes entitled to a share of surplus profits after other dividends have been paid.

Question 11

Redeemable shares:

Answer 11

Shares issued with the intention that the company will/may wish to buy them back/cancel them.

Question 12

Convertible shares:

Answer 12

Carry the option to convert into a different class of share.

Question 13

Procedure for declaring final dividends:

Answer 13

Recommended by the directors and declared by the company by an OR of the shareholders following the financial year.

Question 14

Procedure for declaring interim dividends:

Answer 14

Paid where company has sufficient distributable profits.

Interim dividends can be paid without the need for an OR.

Company has realised an investment.

Question 15

Allotment of shares vs. transfer of shares vs. transmission of shares:

Answer 15

Allotment - issue of new shares.
Transfer - sale of existing shares.
Transmission - automatic process on death/bankruptcy. Death - PRs. Bankruptcy - trustee in bankruptcy.

Question 16

What is the process for transfer of shares?

Answer 16

Transferor completes STF + sends share certificate to the transferee.
Transferee pays stamp duty.
Directors pass BR.
Transfer must be registered and new share certificate sent to the member within 2 months.

Question 17

What is the process for transfer of shares?

Answer 17

Transferor completes STF + sends share certificate to the transferee.
Transferee pays stamp duty.
Directors pass BR.
Transfer must be registered and new share certificate sent to the member within 2 months.

Question 18

Companies under CA 1985 vs. Companies under CA 2006 - cap on shares:

Answer 18

Companies under CA 1985 - authorised share capital;
No cap under CA 2006.

Question 19

Allotment of shares - when do the company’s directors need authority to allot?

Answer 19

Private companies, one class of share - directors have automatic authority.
All other companies - authority must be granted by OR.

Question 20

When must pre-emotion rights be dis-applied on allotment?

Answer 20

Any new ordinary shares (shares with no caps on dividends/capital payments/no caps on capital payments) must be offered pro rata to existing shareholders before any new investor.
Shareholders must be given 14 days to accept.

Question 21

How do you display pre-emption rights?

Answer 21

Companies may disapply pre-emption rights by passing a SR via GM or WR.

Question 22

Summary of procedure for allotment of shares:

Answer 22

1. Any cap on the no. of shares that may be issued?
2. Do the company’s directors need authority to allot?
3. Must pre-emption rights be disapplied on allotment?
4. Must new class rights be created for the shares?
5. Directors must pass a BR to allot the new shares.

Question 23

When is financial assistance prohibited?

Answer 23

When the target is a public company, or when the target is a private company but there is a public company subsidiary.

Question 24

Procedure for buyback of shares out of profits/proceeds of a fresh issue:

Answer 24

Check the purchase of shares is not restricted/prohibited in the company’s Articles.
That the shares being purchased by the company are fully paid up.
Contract to purchase own shares.
Terms of contract must be approved by OR.

Question 25

Procedure for buyback of shares out of capital:

Answer 25

Only private companies.
Purchase of own shares out of capital not restricted.
Directors’ statement of solvency and auditors’ report isn’t required.
SR to approve payment out of capital.

Question 26

Procedure for dividends:

Answer 26

Check profits are available;
Check special articles;
Directors decide whether a dividend ought to be declared, make a recommendation;
Members vote by OR.

Question 27

What is the process for transfer of shares?

Answer 27

Transferor completes and STF and sends it with the share certificate to the transferee
Transferee sends STF to HMRC and pays stamp duty within 30 days
Transferee sends stamped STF and share certificates to the company
Directors pass BR
Transfer must be registered and new share certificate sent to the new member within 2 months
Company updates Confirmation Statement.