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Law for Accountancy + Business > Lecture 15 - Capital, Shares and Shareholding > Flashcards

Lecture 15 - Capital, Shares and Shareholding Flashcards

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1
Q

Company capital =

A

Money/ capital company needs to finance business

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2
Q

Loan capital =

A

Money borrowed to provide working capital for business

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3
Q

Share capital =

A

Issue of shares is a way to raise money in exchange for a stake/ interest in company

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4
Q

Why invest in shares? (3)

A
  • Ability to control business
  • Capital gains
  • Dividends
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5
Q

Nominal (par) value =

A

Each share in company has assigned nominal value, no relation to actual value of shares.

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6
Q

Issued/ allotted share capital =

A

Nominal value of shares actually ISSUED by company

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7
Q

Paid up capital =

A

Amount of issued share capital paid for by members

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8
Q

Ordinary shares =

A

Carry voting rights and can attend general meetings. No legal entitlement to dividends

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9
Q

Preference shares =

A

Usually no voting rights. Right to payment of final dividend in priority to ordinary shareholders, as long as dividend declared at some stage (cumulative).

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10
Q

Redeemable shares = (3)

A
  • Shares which must be bought back by company at pre-determined times at option of company/ shareholder, depending on terms of issue.
  • Money required must come from distributable profits/ cash proceeds new issue of shares.
  • Redeemed shares cancelled and capital reduced by nominal value.
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11
Q

Debt advantages (3)

A
  • Fixed rate of return in form of interest repayments, even if value of company decreases
  • If loan adequately secured, likely to be safe
  • Debt can be sold to third party if required
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12
Q

Debt disadvantages (2)

A
  • No right to participate in management of company

- No chance of sharing in any uplift in value of company

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13
Q

Equity (public company) advantages (3)

A
  • Dividends more certain
  • Ready market for sale
  • Prospect of the value of shares increasing
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14
Q

Equity (public company) disadvantage

A
  • No control/ involvement in running of company > usually very small stake
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15
Q

Equity (private company) advantages (2)

A
  • Interest/ stake in company potentially with some control

- Chance to share in increased value of company

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16
Q

Equity (private company) disadvantages (3)

A
  • Dividends not guaranteed
  • More restricted market for sale
  • Could lose the lot
17
Q

Issue of shares

A

New shares can only be issued with authority of members, but general practice to authorise directors to issue new shares at their discretion for up to 5 years

18
Q

Pre-emption rights

A

Any new shares issued by company for cash must first be offered to existing members in proportion to their existing holdings. If refuse, can then offer elsewhere.

19
Q

Pre-emption rights > private companies

A

Possible to disapply rule, either in Articles, or by special resolution, when want to issue shares to new members.

20
Q

Transfer of shares =

A

Shares transferred when one person sells/ gives them to another, they are then registered as new member

21
Q

Transfer of shares process - 6 steps

A

1) Seller signs stock transfer form (STF)
2) Buyer pays price + stamp duty (0.5% rounded up to nearest £5)
3) Buyer sends STF to company with original share certificate
4) Directors approve registration of transfer, new share certificate issued
5) Register of Members updated
6) Details of changes in membership notified each year to Registrar of Companies

22
Q

Stamp duty on gifts of shares?

A

No

23
Q

Restrictions on transfer

A

No restrictions under Table A/ Model Articles, but common for firm for place restriction on ability to transfer

24
Q

Dividends (3)

A
  • No automatic entitlement
  • Must be authorised by members (can declare lower but not higher)
  • Only payable out of available profits
25
Q

Who recommends dividend?

A

Directors

26
Q

Who declares dividend?

A

Shareholders

27
Q

Directors who authorise payment of dividend other than out of distributable profits… (+case)

A

May be liable to repay personally. Bairstow v Queens Moat Houses plc 2000 > new director, authorised then liable

28
Q

Creditor gives credit on faith of the implied representation that.. (+ case)

A

Capital shall be applied only for purposes of business and not returned to members. Flitcroft’s Case 1882 > directors presented untrue accounts, shareholders declared dividend, went into liquidation, directors liable.

29
Q

Capital Maintenance Principle > 2 aspects

A
  • Creditors have right to ensure capital not improperly diluted/ dissipated
  • Capital must not be given back to members
30
Q

Issue of shares at discount

A

Companies prohibited from issuing new shares at discount.

31
Q

Can existing shares be sold for less than nominal value?

A

Yes if that’s all they’re worth

32
Q

Issue of shares at a premium

A

Common place. Excess over nominal capital must be shown in Share Premium account

33
Q

Purchase by a company of own shares using own assets (4)

A

Generally not permitted except under certain circumstances:

  • Must not be restricted in Articles
  • Members must pass ordinary resolution approving
  • Purchase must be from available profits
  • Shares bought back must be cancelled
34
Q

If insufficient profits for company to buy back shares (7)

A

Can buy back from capital, but additional stringent requirements:

  • Must be permitted by Articles
  • All creditors must be notified
  • Directors must make statutory declaration company is solvent and will remain so for next 12 months
  • Supporting audit report
  • Ordinary resolution authorising buy back, and special resolution authorising payment out of capital must be passed
  • Dissentient shareholders/ creditors can apply to Court to complain if they wish
  • Time limits > wait 5 weeks for creditors to respond, then deal must be completed within 14 days
35
Q

Financial assistance for purchase of shares

A

Until CA 2006, prohibited for company to provide any financial assistance to purchase shares. Now permitted for private companies, NOT public.

36
Q

Distributions =

A

Giving money back to members.

37
Q

What amounts to capital (cannot be returned to shareholders) and what amounts to profits (can)?

A

Trading and capital profits less trading and capital losses = profit distributable to members

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