Finance Flashcards
How can companies obtain finance?
(A) equity - prospective shareholders pay money or give property to the company in return for shares.
(B) debt - companies borrow money to fund expansion or just the day-to-day running of the company.
Allotment
When a company decides to create shares and give them to an existing shareholder or a new shareholder in return for payment.
Share transfer
Shareholder sells or gives shares to another shareholder or to a new shareholder.
Buy back
Company buys back some of its own shares from one or more shareholders - the shares that are brought back are cancelled.
What is the difference between ‘allots’ and ‘issue’?
Company allots shares when a person acquires the unconditional right to be included in the company’s register of members.
Shares are issued by the company when the name of the shareholder has been entered on the register of members.
What 3 questions do you need to consider when working out the procedure to allot shares?
(A) are there any restrictions on allotment?
(B) do the directors have authority to allot shares?
(C) are there any pre-emption rights? (Rights of first refusal over shares).
Can shares that have been allotted, be offered to existing shareholders and new shareholders at the same time?
Existing shareholders must be offered first and would need to accept not less than 14 days.
Exception - if a new shareholder owns something which the company needs e.g. property.
Can shares that have been allotted, be offered to existing shareholders and new shareholders at the same time?
Existing shareholders must be offered first and would need to accept not less than 14 days.
Exception - if a new shareholder owns something which the company needs e.g. property then the shares can be allotted to them.
How are shares transferred?
Must complete and sign a stock transfer form and give to the transferree along with the share certificate.
If the sale price of shares is over £1000, the buyer must pay stamp duty £5 minimum.
Transferee must then send a new certificate to the shareholder and enter their name on the register of members within 2 months.
What happens if a shareholder dies or is made bankrupt?
If they die, their shares automatically pass to their personal representatives.
If a shareholder is made bankrupt, their shares automatically vest in their trustee in bankruptcy.
Share capital
Money provided by shareholders in return for shares.
Share capital cannot be reduced because it is fund which creditors look to for payment of debts owed to them.
Can companies buy back their own shares out of capital?
Private companies can provided they have used up their distributable profits.
Public companies are not permitted to buy back shares out of capital.
Solvency
The ability of a company to meet its long-term debts and other financial obligations.
When can a company pay a dividend?
Who decided this?
Who can approve it?
Company can pay a dividend if it has profits available - if there is no profit, they can use profits from previous years.
It is the directors decision.
Shareholders must then pass an ordinary resolution in order for this to be approved.
