financing the company Flashcards
what is share capital?
obtained by selling shares
what is loan capital?
obtained via borrowing
what is a share?
s540(1) CA 2006 - a share in the company’s share capital
it represents a bundle of rights
typically including:
- right to vote as a member
- right to return of capital on winding up
- right to participate in distribution of profits
what are the classes of shares?
ordinary and preference shares
where are the rights to issue different classes of shares usually obtained?
in the articles
how are shares issued?
by the company
who are shares allotted to and when?
shareholders when they acquire the unconditional right to be included in the company’s register of members
where is the power to allot shares usually vested?
in directors subject to provisions of articles
what do existing shareholders have?
a right of pre-emption - s561(1) CA 2006
what is the general rule on transfer of shares?
they are freely transferable subject to the provisions of the articles
what is a debenture?
a document creating a company debt
what may a lender require for security?
a claim over the company’s assets
if the company defaults on the debt the lender can seize the assets as satisfaction
what kind of debt is it when the lender has some security?
a secured debt
what is the most common form of security?
a charge - fixed or floating
what is a fixed charge?
a charge over a fixed, identifiable company asset
the lender can seize the asset and sell it if the company defaults
a mortgage is a fixed charge
a company can grant multiple fixed charges over the same asset
what is a floating charge?
not attached to any particular assets
suitable for assets which fluctuate, or which need to be used
usually taken over the entire undertaking of the company
a class of assets constantly changing
company is left free to use and deal with the assets
what can happen to a floating charge?
it can crystallise
on crystallisation it becomes a fixed charge
what events will lead to crystallisation?
winding up
appointment of an administrator or receiver
events specified in the charge document
what are the benefits of a fixed charge
- offers better security for lenders
- on liquidation, usually ranks ahead of all other debts
- cannot be set aside
what are the benefits of a floating charge?
- allows the company to deal with the assets
- suitable for alll types of assets
- open to challenge by liquidator or administrator
what must all limited companies keep?
a register of charges
any potential creditor can inspect the register
failure to comply is an offence
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where must the register of charges be kept?
at the company’s registered office
where must all floating charges and most fixed charges be registered?
the companies house within 21 days of creation charge
