Introduction to Shares Flashcards
What is the nominal value of a share?
A. The amount the company is willing to sell the share for
B. The market value of the share at the time of issue
C. The maximum price a share can be issued for
D. The minimum price a share can be issued for
D. The minimum price a share can be issued for
Explanation: Under s542 CA 2006, a share must have a fixed nominal value, which is the minimum amount it can be issued for. Issuing shares at a discount is prohibited (s580 CA 2006).
Which type of share typically carries no voting rights and a fixed dividend priority?
A. Ordinary shares
B. Preference shares
C. Convertible shares
D. Deferred shares
B. Preference shares
Explanation: Preference shares usually carry no voting rights but do have a fixed right to dividends, which are paid before any are paid to ordinary shareholders.
What document sets out the rights attached to shares?
A. Articles of Association
B. Shareholders’ Agreement
C. Share certificate
D. Company’s annual return
A. Articles of Association
Explanation: The Articles contain the legal rules governing the rights attached to shares, including dividend, voting, and capital rights.
Which of the following cannot be paid unless there are sufficient distributable profits?
A. Employee bonuses
B. Director salaries
C. Dividends
D. Share premiums
C. Dividends
Explanation: A company can only pay dividends if it has distributable profits as per s830 CA 2006. This ensures shareholder returns are not paid from capital.
Which shares carry no rights unless there is surplus profit or special provision?
A. Deferred shares
B. Redeemable shares
C. Cumulative shares
D. Participating preference shares
A. Deferred shares
Explanation: Deferred shares typically rank last for dividends and return of capital and often carry no rights unless there’s a surplus.
Ahmed owns £1 preference shares in a company and is entitled to a 5% fixed dividend annually. No dividend was declared last year. This year, profits are high and the company declares a dividend. What is Ahmed entitled to if the shares are cumulative?
A. 5p dividend for this year only
B. Nothing, because no dividend was declared last year
C. 10p dividend: 5p for last year and 5p for this year
D. 15p dividend
C. 10p dividend: 5p for last year and 5p for this year
Explanation: If preference shares are cumulative, missed dividends are carried forward and paid once profits allow.
Lauren holds ordinary shares in XYZ Ltd. The directors recommend a final dividend. What is the process for her to receive this dividend?
A. Directors must declare the dividend
B. Shareholders must pass an ordinary resolution to declare the dividend
C. A special resolution is required
D. The court must approve the dividend
B. Shareholders must pass an ordinary resolution to declare the dividend
Explanation: Final dividends are proposed by the board and approved by ordinary resolution of shareholders.
A company issues £1 shares for £2. What is the extra £1 known as?
A. Nominal value
B. Par price
C. Surplus
D. Share premium
D. Share premium
Explanation: The share premium is the excess paid over the nominal value, and is recorded in the company’s share premium account.
A company proposes to vary the rights of its preference shareholders. The Articles are silent on how to vary class rights. What is required?
A. A simple majority of all shareholders
B. 75% of the preference shareholders agree in writing or vote for it at a separate meeting
C. Unanimous agreement of the board
D. Consent of 15% of all shareholders
B. 75% of the preference shareholders agree in writing or vote for it at a separate meeting
Explanation: Under s630 CA 2006, if the Articles are silent, variation of class rights requires consent of 75% of that class.
A minority shareholder holding 20% of Class B shares opposes a variation of their class rights approved by 80% of that class. What can they do?
A. Bring a derivative claim
B. Vote to block it again
C. Apply to court under s633 to cancel the variation
D. Demand the directors overturn it
C. Apply to court under s633 to cancel the variation
Explanation: Shareholders holding at least 15% of a class who did not vote in favour can apply to court within 21 days to challenge the variation.
What best describes cumulative preference shares?
A. Preference shares that receive fixed dividend with no carryover
B. Ordinary shares with higher voting rights
C. Shares that cannot be issued above nominal value
D. Preference shares where unpaid dividends roll forward into future years
D. Preference shares where unpaid dividends roll forward into future years
Explanation: Cumulative preference shares accumulate unpaid dividends if they are not paid in any year.
A company has treasury shares. What can it do with them?
A. Sell them, cancel them, or use them in an employee scheme
B. Re-issue them at a discount
C. Use them to increase shareholder voting rights
D. Nothing – they are void
A. Sell them, cancel them, or use them in an employee scheme
Explanation: Treasury shares are issued shares held by the company and can be reused in certain ways, but not reissued at a discount.
