Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Law > Equity Finance > Flashcards

Equity Finance Flashcards

You may prefer our related Brainscape-certified flashcards:
MBE flashcards MPRE flashcards Civil Procedure 1L flashcards
1
Q

What is capital

A

Funds available to run the business of a company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is share capital

A

money raised by the issue of shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How can a business raise funds

A

issuing shares, (ie ‘equity finance’); borrowing (ie ‘debt finance’); and/or retaining its profits for use in the business (rather than paying the profits to the shareholders).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are shares

A

A bundle of rights

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Where are rights and entitlement of shares ste out

A

In the company articles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the nominal or par value of a share

A

The minimum subscription price for that share

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Can share be allotted/issues by a company at a discount to its nominal value

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Can a share be allotted/issued for more than its nominal value (premium)

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the amount of shares in issue at any time know as

A

The issued share capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

When is full legal tile to shares achieved

A

Once a person name is entered in the company’s register of members

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are treasury shares

A

These are shares that have been bought back by the company itself and are held by the company ‘in treasury’.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are ordinary shares

A

Ordinary shares the most common form of share and are the default position: if a company’s shares are issued without differentiation, they will be ordinary shares.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What rights do ordinary shares carry

A

Right to vote in GMs
Right to a dividend if one is declared
Right to portion of any surplus assets of the company on a winding-up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is a preference share

A

A preference share may give the holder a ‘preference’ as to payment of dividend or to return of capital on a winding up of the company, or both. This means the payment will rank as higher priority than any equivalent payment to ordinary shareholders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Are preference shares usually non - voting

A

Yes but it is important to check the rights set out in the Articles since it is possible to issue preference shares with voting rights.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a cumulative preference share

A

It is presumed that a preference share is ‘cumulative’ unless otherwise stated. This means that if a dividend is not declared for a particular year, the right to the preferred amount on the share is carried forward and will be paid, together with other dividends due, when there are available profits. If this accumulation is not desired, then the share must be expressed to be non-cumulative.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a participating preference share

A

Participating’ preference shareholders may participate, together with the holders of ordinary shares, (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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are deferred shares

A

These 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.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are redeemable shares

A

Redeemable shares are shares which are issued with the intention that the company will, or may wish to, at some time in the future, buy them back and cancel them.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

If you a company with model articles wishes to add a class of shares or vary existing class rights what is needed

A

A special resolution - consent of at least 75% of shareholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are distributable profits

A

company’s accumulated realised profits less its accumulated realised losses (s 830(2)).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

When are dividends payable

A

When a company has sufficient distributable profits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the difference between allotting and transferring shares

A

An allotment of shares is a contract between the company and a new/existing shareholder under which the company agrees to issue new sharesin return for the purchaser paying the subscription price.
A transfer is a contract to sell existing shares in the company between an existing shareholder and the purchaser.The company is not a party to the contract on a transfer of shares (with the exception of a sale out of treasury of treasury shares).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

In an offer of shares by a private company will a prospectus usually be required

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is transmission of shares

A

Transmission of shares is an automatic process in the event of death or bankruptcy of a shareholder as follows:
• If a shareholder dies, their shares will automatically pass to their personal representatives.
• If a shareholder is made bankrupt, their shares automatically vest in their trustee in bankruptcy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How is a tarnsfer of shares made

A

stock transfer form, which has to be signed by the transferor and submitted, with the share certificate, to the new shareholder (s770 CA 2006).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

When does benficial and legl title to shares pass

A

Beneficial title to the shares passes on the execution of the stock transfer form. Legal title passes on the registration of the member as the owner of those shares in the register of members by the company (s 112 CA 2006).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

When does a company have to spend the shareholder a new share certificate in their name by

A

Within two months of the transfer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

When must stamp duty be payed on share transfer

A

Stamp duty is payable by the buyer at 0.5% of the consideration rounded up to the nearest £5. No stamp duty is payable where the consideration is £1000 or less; but where the consideration is more than £1000, a minimum fee of £5 is payable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What are the 5 steps when allotting shares

A
  1. Any cap of the number 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 board resolution to allot the shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Does the requirement for a company to have a cap on shares exist udner CA 2006

A

No - shareholders wishing to impose a cap to restrict the number of shares which such a company can issue will need to amend the Articles (by special resolution) to include suitable provisions

32
Q

For companies incorporated under CA 1985 how can shareholders remove the Cap on shares

A

By ordinary resolution.
This is despite the fact that removing such a deemed restriction involves changing the Articles, which would normally require a special resolution under s 21(1) CA 2006.

33
Q

When will directors have automatic authority to allot shares

A

S 550 CA 2006: for private companies with only one class of shares in existence, the directors will have automatic authority to allot new shares of the same class

34
Q

If directors do not have automatic authority to allot shares what is needed

A

the directors will need to be granted authority to allot the new shares by the shareholders by way of ordinary resolution

35
Q

Does the Ordianry resolution allowing directors to allot shares need to be filed at company’s house

A

Ordinary resolution will need to be filled at companies house for this amendment to articles despite the general rule that only special resolutions need to be filled

36
Q

What does pre -emption right mean

A

New shares should be offered to existing shareholders before new investors

37
Q

When will shares not fall within the definition of equity securities and therefore not need to disapply pre - emption rights

A

if a class of shares carries a right to receive dividends and, on a winding up, capital payments, and these rights are both capped, the shares will not fall within the definition of ‘equity securities’ and will not need to be offered pre- emptively

38
Q

When will a share be an equity security and therefore be subject to pre- emption rights

A

If the share participates in either dividend or capital it will be an equity security.

39
Q

What is the most common way companies dispense with pre -emption rights in allotment

A

By passing a special resolution

40
Q

What is needed if a company wishes to create a new class of shares

A

Special resolution to amend company articles

41
Q

What is needed if a company wishes to create a new class of shares

A

Special resolution to amend company articles

42
Q

What forms must be sent to companies house in relation to allotment of shares

A

Return of allotment form SH01 and statement of capital within one month
If the persons with significant control have changed as a result of the allotment then the relevant forms (PSC01 ETC)

43
Q

What company registers need updating after allotment of shares

A

Register of members within two months of the allotment
Update PSC register if necessary

44
Q

What are the 4 helpful steps in deciding whether financial assistances rules apply

A
  1. Is this sale of shares (if it is any other property can not be financial assistance)
  2. Is this finacial assistance? Loans, gifts, securities and gaurantees - direct or indirect
  3. For the purpose of share acquisition ?
  4. Which companies are prohibited - identify the target Company - if a plc target and suisdarys are prohibited, if private company only plc subsidiary prohibited
45
Q

Who is the target company in relation to financial assistance

A

The company whose shares are being acquired

46
Q

If the target company is a public company who does prohibition on giving financial assistance apply to

A

• The target company itself; and
• any subsidiary of the target company, whether private or public

47
Q

If the target company is a private company who does the propitiation on giving financial assistance apply to

A

Only any public company subsidiary of the target company.

48
Q

What are examples of financial assistance

A

Gifts

guarantee, security or indemnity, release or waiver

Loans or similar agreemnets

49
Q

What are the possibly penalties of financial assistance

A

For the company a fine
For the offices of the company fine or imprisonment
The transaction amounting to prohibited financial assistance (eg the loan made to the buyer) would be void and the wider transaction (eg the share acquisition itself) may be void as well.

50
Q

Is a company usually permitted to return capital to its shareholders

A

No

51
Q

What are the consequences of the principles of mainatnce of share capital

A

• Dividends may only be paid out of distributable profits, not capital (s 830(1)), and
• Companies generally must not purchase their own shares.

52
Q

What are the exemptions to the rules of mainatnmce of share capital

A

• A company may buyback its own shares (or redeem redeemable shares) provided it follows the procedures set out in CA 2006, and
• A company may purchase its own shares where a court order is made for this following a successful shareholder petition for unfair prejudice.

53
Q

What are the two situations in which a company can effectively buy its own shares

A

• redemption of redeemable shares; and
• purchase of own shares (‘buyback’).

54
Q

What is a buyback of shares

A

A buyback of shares takes place when a company purchases its own shares from an existing shareholder.

55
Q

When may a company buyback shares

A

A company may decide to purchase shares from a shareholder when there is no other buyer available.

56
Q

What is an off - market purchase

A

purchase of own shares will take place otherwise than on a ‘recognised investment exchange’

57
Q

What is needed when company’s are buying back shares off -market

A

the company will need a contract setting out the terms of the purchase and this contract will need to be approved by the shareholders by an ordinary resolution.

58
Q

How may a company fund a buyback of shares

A

Distributable profits;
Proceeds of a fresh issue of shares made for the purpose of financing the buyback; or
Capital (Strictly regulated)

59
Q

What are the restrictions on using capital to buyback shares

A

• The option to use capital is only available to private companies. A public company can never use capital to purchase its own shares;

• Any redemption or purchase out of capital must comply with the restrictions in ss 709 - 723 CA 2006 inclusive; and

Companies must first use any money available either in the form of distributable profits or the proceeds of a fresh issue of shares to fund the purchase before using capital.

60
Q

When Can a company buyback shares out of distributable profits and proceeds of fresh issue

A

The purchase of own shares is not restricted or prohibited in the company’s Articles

The shares being purchased by the company are fully paid up

Following the purchase, the company must continue to have issued shares other than redeemable and treasury shares.

61
Q

What is needed if buying back shares through profit or proceeds of fresh issue

A

a contract to purchase own shares is required the terms of the contract need to be approved by ordinary resolution

62
Q

Where must a contract for buying back shares be available for inspection and for how long

A

The contract must be available for inspection at the company’s registered office for a period of 15 days before the GM and also at the GM. If a written resolution is used, a copy of the contract must be sent together with the copy of any written resolution (s 696(2)).

63
Q

What are the post meeting matters for a buyback of shares using profits or proceeds of fresh issues

A

• File return, notice of cancellation & statement of capital within 28 days

• Keep copy of contract for 10 years

Cancel shares, update register of members (and PSC register if applicable)

64
Q

What conditions apply to buyback of shares out of capital (private company only)

A

The purchase of own shares out of capital is not restricted or prohibited in the company’s Articles

Check that the accounts were prepared no more than three months before the directors’ statement

Check if the company has any distributable profits available. If so, those profits (or funds from a fresh issue of shares for the purpose) must be used to fund the buyback before capital can be used

A directors’ statement of solvency must be prepared together with an auditors’ report

A special resolution to approve payment out of capital must be passed within a week after the directors sign the written statement of solvency

65
Q

When must a special resolution to approve payment of capital be passed by

A

within a week after the directors sign the written statement of solvency (s 716).

66
Q

When must a directors statement of solvency be made in relation to buyback out of capital

A

No earlier than one week before the GM

67
Q

What does a directors statement of solvency confirm

A

. The statement confirms that the company is solvent and able to pay its debts as they fall due and that it will remain solvent for a period of 12 months after the buyback (s 714).

68
Q

What is an auditors report in relation buyback out of capital

A

An auditors’ report must be annexed to the written statement of solvency confirming that the auditors are not aware of anything to indicate that the directors’ opinion is not reasonable (s 714).

69
Q

Where must a A copy of the directors’ statement and auditors’ report must be made available to members

A

Sent with the written resolution or available at the GM

70
Q

Within seven days of the passing of the special resolution approving the payment out of capital, How must a company give notice to its creditors

A

Publishing a notice in the gazette and in and appropriate national newspaper (or give notice in writing to each of its creditors)

71
Q

What must the notice to creditors in the gazette state

A

• that the company has approved a payment out of capital for the purpose of purchasing its own shares;

• where the directors’ statement and auditors’ report are available for inspection; and

• that any creditor of the company may, at any time within the five weeks immediately following the date of the resolution, apply to the court under s 721 CA 2006 for an order preventing the payment.

72
Q

When can the share purchase take place after the date of the special resolution

A

No earlier than five weeks and no later than Seven weeks after the special resolution has been passed

73
Q

What must be filed at companies house within 28 days of the date on which the shares that are bought back are delivered to the company (using capital to buyback)

A

A return to companies house
Notice of cancellation
Statement of capital

74
Q

When must the special resolution for buyback using capital be filed at companies house

A

Within 15 days of the special resolution being approved

75
Q

Where will details of redemption for redeemable shares be found

A

All details of the redemption, including date of redemption and the price to be paid at that date, will either be in the Articles or determined by the directors.

Business Law (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions