financing the company

Question 1

what is share capital?

Answer 1

obtained by selling shares

Question 2

what is loan capital?

Answer 2

obtained via borrowing

Question 3

what is a share?

Answer 3

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

Question 4

what are the classes of shares?

Answer 4

ordinary and preference shares

Question 5

where are the rights to issue different classes of shares usually obtained?

Answer 5

in the articles

Question 6

how are shares issued?

Answer 6

by the company

Question 7

who are shares allotted to and when?

Answer 7

shareholders when they acquire the unconditional right to be included in the company’s register of members

Question 8

where is the power to allot shares usually vested?

Answer 8

in directors subject to provisions of articles

Question 9

what do existing shareholders have?

Answer 9

a right of pre-emption - s561(1) CA 2006

Question 10

what is the general rule on transfer of shares?

Answer 10

they are freely transferable subject to the provisions of the articles

Question 11

what is a debenture?

Answer 11

a document creating a company debt

Question 12

what may a lender require for security?

Answer 12

a claim over the company’s assets
if the company defaults on the debt the lender can seize the assets as satisfaction

Question 13

what kind of debt is it when the lender has some security?

Answer 13

a secured debt

Question 14

what is the most common form of security?

Answer 14

a charge - fixed or floating

Question 15

what is a fixed charge?

Answer 15

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

Question 16

what is a floating charge?

Answer 16

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

Question 17

what can happen to a floating charge?

Answer 17

it can crystallise
on crystallisation it becomes a fixed charge

Question 18

what events will lead to crystallisation?

Answer 18

winding up
appointment of an administrator or receiver
events specified in the charge document

Question 19

what are the benefits of a fixed charge

Answer 19

• offers better security for lenders
• on liquidation, usually ranks ahead of all other debts
• cannot be set aside

Question 20

what are the benefits of a floating charge?

Answer 20

• allows the company to deal with the assets
• suitable for alll types of assets
• open to challenge by liquidator or administrator

Question 21

what must all limited companies keep?

Answer 21

a register of charges
any potential creditor can inspect the register
failure to comply is an offence

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Question 22

where must the register of charges be kept?

Answer 22

at the company’s registered office

Question 23

where must all floating charges and most fixed charges be registered?

Answer 23

the companies house within 21 days of creation charge