Equity of a PLC

Question 1

What is Authorised Share Equity?

Answer 1

The Authorised Equity of a company is the maximum amount of share equity that the company is permitted by its constitutional documents to issue (sell) to shareholders.

Question 2

What is Issue Share Equity?

Answer 2

This is the amount and types of shares which have been issued (sold) to the public. This is shown in the Equity section of the Statement of Financial Position.

Question 3

What is Share Equity?

Answer 3

There are 2 types of shares: Ordinary and Preference. The purchase of these will represent ownership of a business.

Question 4

What are Ordinary Shares?

Answer 4

These types of shares allow shareholders to attend and vote at all shareholder meetings held by the company. The dividends paid to shareholders will vary and depend on the profits made by the company. The rate of dividend on ordinary shares can be ‘passed’.

Question 5

What are Preference Shares?

Answer 5

Unlike ordinary shares these generally carry no voting rights. Preference shareholders are paid a fixed rate of dividend. In the event of liquidation Preference shareholders may have preference as to repayment other the Ordinary shareholders.

Question 6

What is Share Premium?

Answer 6

This is a reserve which will exist when the company sells shares at a later date for a higher price than the original selling price.

The share premium is shown in the Statement of Financial Position as a reserve. It is not available for distribution to shareholders but can be used to write off preliminary expenses or make a bonus issue of shares.

Question 7

What is a Bonus Issue?

Answer 7

This is when current shareholders are given free shares by the company. The company will cover the cost of this usually from the Share Premium Account. This encourages loyalty from existing shareholders.

Question 8

What is a Rights Issue?

Answer 8

This is a method of raising finance by issuing shares to existing shareholders in proportion to existing shareholding. Unlike a bonus issue, shareholders have to pay for these shares. This is a cheap method of raising finance for the company. Shares are usually sold below the current market price in order to encourage shareholders to buy.

Question 9

Whare are the main sources of finance available to plc?

Answer 9

• Ordinary Shares
• Preference Shares
• Debentures

Question 10

What are suitable sources to all businesses except plc?

Answer 10

• Bank Loans
• Government
• Mortgages