Equity Finance Flashcards
What is fixed nominal value?
Shares must have fixed nominal value otherwise allotment will be void.
How is allotment of shares different to issue?
Allotment = a person requires an unconditional right to be included in the company’s register of members.
Full legal title is only acquired when the name is entered in the register.
What are dividends?
Income that arises from shares. May be final or interim and payable only out of distributable profits.
**Final = ** recommended by directors, declared by the company by ordinary resolution. Shareholders can approve / reject directors’ recommendation or declare a dividend smaller than that recommended.
Interim: articles usually give directors power to pay an interim dividend if sufficient distributable profits are available.
What are ordinary shares?
Shares which carry 3 rights:
1. Right to vote at GM
2. Right to dividend declared (unrestricted)
3. Right to surplus assets on winding up
What are preference shares?
Give shareholder preference as to payment of dividends / receiving payment on winding up than ordinary shares. Normally carry no right to vote.
May be cumulative and/or participating.
Cumulative: dividend not declared for year, right to have it carried forward and paid when profits are available.
Participating: right to surplus profits available for distribution after receiving own dividend / surplus assets on winding up.
How can a class of shares be varied?
Share classes are defined in the articles, therefore amendment may require varying the articles.
If not, can vary by at least 75% of issued shares of that class OR special resolution of that class.
Shareholders voting against and holding 15% of relevant shares may apply to court within** 21 days** to have variation cancelled.
When will share transmission take place?
Automatically on death or bankruptcy
How are shares transferred?
Subject to articles / the ShA
* Sign STF, stamp and submit with share certificate to the new owner
* No stamp duty where £1000 or less.
* Beneficial title passes on execution of STF
* Legal title passes on registration
* Company must send new shareholder a share certificate within 2 mths.
Can a director refuse a share transfer?
Yes, can refuse to register it by giving reasons. STF will be returned to transferee with notice of refusal unless fraudulent.
What is the procedure for allotment of shares?
C = Cap
A = Authority to allot
D = Disapply pre-emption rights
C = create class
A = allot
How can the cap on issuable shares be checked for allotment?
- Check CAP
CA 1985: will have an authorised share capital
CA 2006: check articles - Amend cap
CA 1985: ordinary resolution to amend articles
CA 2006: special resolution to change articles, otherwise each issue just increases share capital automatically.
What is authority to allot?
- Director of private company with only 1 class of shares = automatic authority to allot shares of same class (s.550). However, if CA 1985 co, require ordinary resolution + file OR at Companies House!
- Otherwise, must be granted authority by articles or ordinary resolution and authority lasts max 5 years.
How are pre-emption rights disapplied?
Either allow shareholders to exercise pre-emption rights or disapply them by special resolution.
Pre-emption rights apply to equity securities (i.e ordinary shares or rights to subscribe / convert into ordinary shares OR shares where both rights to receive dividends and surplus proceeds on windup are not fixed / capped / excluded).
How are shares alloted by the board?
Directors pass a board resolution. Within 15 days, the following things should be filed at CH:
- Ordinary resolution giving authority to allot
- Special resolutions for disapplying pre-emption rights / amending articles
- Form SH01 = return of allotment and statement of allotment (within 1 mth)
- PSC01 = if PSCs have changed
Must also update company register within 2 mths of allotment (members, PSCs and share certificates).
