Module 15: Shares, Share Capital and Maintaining Capital Flashcards

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1
Q

What is a company’s capital?

A

Funds available for use in the business, representing its assets

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2
Q

Two major long term sources or finance?

A

Share capital

Loan capital- debenture holders lend money

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3
Q

What are shares?

A

Transferrable form of property which carries rights and obligations and which measures the interest which a member of the company has in it

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4
Q

What does share capital refer to?

A

Issued and allotted share capital
Called up share capital- pay not in future on shares
Paid up share capital- actually paid
Uncalled share capital

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5
Q

How much paid upfront?

A

1/4 nominal value

Full amount of premium

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6
Q

What are ordinary shares?

A

Riskiest form of capital because if company wound up is last to be repaid

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7
Q

Rights of an ordinary shareholder?

A
Attend GM
Vote
Dividend
Transfer surplus assets on wind up
Transfer shares 
Membership rights
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8
Q

What are preference shares?

A

Rights in preference to other shares
Prior right to receive annual fixed dividend and over ordinary shareholders to return of capital on winding up
Cumulative right (carried forward if not paid)
No voting rights
Can be convertible, date and terms into ordinary share

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9
Q

Advantages of preference shares?

A

Greater security of income since dividend fixed

Greater security of capital , prior right on wind up

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10
Q

Disadvantages of preference shares?

A

Dividend stays the same even if the company makes bumper profits

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11
Q

What are redeemable shares?

A

Can be bought back by the company at future date
Strengthen the capital base without diluting the strength of its ordinary shareholders
Useful exit route
Can’t be all these
Can’t redeem if not fully paid

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12
Q

What are treasury shares?

A

Company’s own shares which it has brought back but not cancelled
Cancelled, sold for cash or transferred to an employee share scheme
No voting rights
Keep record in treasury share account

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13
Q

Other possible classes of shares?

A

Founders shares- rank after ordinary but have more voting rights
Management shares in large public companies which give additional voting rights to companies

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14
Q

What is a member of a company?

A

Agreed to be a member and whose name has been entered into the register

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15
Q

How may a person become a member of a company?

A

Subscribing to memorandum
Agreeing to become a member- shares
Transmission of shares by operation of law

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16
Q

How may membership cease?

A
Member transfers shares
Member dies
Shares of a bankrupt member reg in trustee
Minor repudiates on majority
Trustee disclaims his shares
Accepts surrender of shares
Company dissolved
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17
Q

Variation of class rights?

A
Restrictive approach when asked to determine whether rights have been varied
Rights varied in accordance with companies articles
OR 75% nominal value of shares of that class consent either in writing or by way of special resolution
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18
Q

What conditions must be met for shareholders to object to variation of class rights?

A

15% of that class
Not themselves consented or voted in favour of variation
Must apply to court within 21 days of consent being given or resolution passed
Court cant’ modify terms either ok or unfairly prejudicial
Must show they were seeking some advantage

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19
Q

Greenhalgh v Ardene Cinemas 1951

A
No variation of class rights as each 10p carried one vote as before
Subdivision of one class under a power which has effect of increasing voting rights
20
Q

White v Bristol Aeroplane 1953

A

Made bonus issue of ordinary and preference shares to existing ordinary shareholders
Pref argued it reduced their proportionate holding
Altered their voting power but not their RIGHTS
Same number
Did not need their approval

21
Q

Re Bede Shipping Co Ltd 1917

A

Refuse to register a transfer

Grounds that are personal to the proposed transferee

22
Q

Re Hackney Pavilion Ltd 1924

A

Two directors divided on weather transfer should proceed
Asked to write to solicitors and indicate not go ahead
Must go ahead since board was equally divided so couldn’t exercise right to decline

23
Q

Refusal of registration must be exercised when?

A

Within 2 months after the date of transfer lodged

24
Q

Curtis v JJ Curtis and Co Ltd 1986

A

First had to offer to existing shareholders rather than to outsider
Not done
Prevented him from transferring other than in accordance with articles

25
Q

What is the allotment of shares?

A

Issue and allocation of certain number of shares
Allotted holder is entered into register of members as being holder
1 class LTD don’t require authorisation
Over 1 and ALL PUBLIC need authorisation by ordinary res or by articles

26
Q

Authority to allot may not be given for more than how long?

A

5 years

Must state max amount authorised to allot

27
Q

If company proposes to allot equity securities (broadly ordinary shares) wholly for cash what obligation does it have first?

A

offer those to existing holders of same or similar shares in proportion to their existing holdings
Statutory pre-emption right

28
Q

What is Statutory pre-emption right?

A

offer those to Existing holders of same or similar shares in proportion to their existing holdings

29
Q

What is a rights issue?

A

Each ordinary shareholder must be offered a part of the new issue pro rata to his existing holding
Offer period 21 days, can be as short as 14

30
Q

Shareholders may dis-apply their pre-emptions rights by?

A

Special resolution

31
Q

What is a Bonus issue?

A

Capitalisation of the company’s reserves by issuing additional shares to existing shareholders pro rata to existing holdings
No new money
Normally restricted to ordinary shareholders
No dilution

32
Q

No discount rule?

A

Can’t be allotted at a discount to that nominal value

33
Q

Ooregum Gold Mining Co of India v Roper 1892

A

Issued shares at market values less than nominal
No-one would get more at par
Needed more money so made cheaper
Could not agree to take less
Purpose to render every shareholder liable to pay that amount for shares

34
Q

Private companies may allot shares for inadequate consideration by?

A

Acceptance of goods or services at an over value provided the actions are reasonable and honest

35
Q

Re Eddystone Marine Insurance Co 1893

A

Before offering shares E allotted 6000 £1 shares as fully paid to allottees as a reward for services
No such services given
Liquidation, liquidator argued £6000 was due on the share
No consideration had been given
Liquidators claim upheld

36
Q

Public company can allot shares for non-cash consideration provided?

A

Independent report on value of the consideration obtained

Approved by ordinary resolution

37
Q

Premium must be paid into what?

A

Share premium account

38
Q

What may the money in a share premium account be used for?

A

Pay up fully paid bonus shares

Pay off company’s preliminary expenses

39
Q

What is a fundamental principle of company law?

A

Company must maintain its share capital

40
Q

Capital that a limited company obtains from its members as consideration is sometimes called what?

A

Creditors buffer

41
Q

Dividends to shareholders can’t be paid out of what?

A

Capital

42
Q

PLC can only make a distribution of profits if?

A

Net assets are not less than the aggregate called up share capital and undistriibutable reserves (premium account and capital reserve)

43
Q

Flitchcroft’s Case 1882

A

Directors liable for wrongful payments and must reimburse the company the full amount of the dividend
Only if know circumstance of payment was wrongful

44
Q

Financial assistance?

A

Public company prohibited from giving assistance for acquisition of its own shares or parents company

45
Q

Penalties for breach of financial assistance?

A

Fine or imprisonment
Fine for company
Unlawful so void

46
Q

Consequences of breaking the financial assistance rules?

A

Guarantee void
Sue for breach of duty
Receiving on knowledge that is wrongful are liable on based on constructive trust

47
Q

Exceptions to the basic prohibition that a company can’t provide financial assistance?

A

Larger purpose given in good faith in interests of company
Part of ordinary business
Employees share scheme