Module 3 Share and Loan Capital

Question 1

Three types of debentures

Answer 1

• Single debentures
• Debentures issued in a series
• Debenture stock

Question 2

Single debenture

Answer 2

Company obtains a secured loan or overdraft from a bank

Question 3

Debentures issued in a series

Answer 3

• Lenders should rank equally (pari passu) in their right to repayment and in secuirty the company gives them

Question 4

Debenture stock

Answer 4

• Only public company can issue debnture stock to public
• Offered by way of prospectus
• Debenture stock can be traded
• Company must register and certificate no later than 2 months after allotment

Question 5

Remedies for an unsecured debenture holder

Answer 5

• Sue the company for the debt and obtain court order.
  
  • Right to seize property if remains unpaid
• Wind the company up
  
  • Be owed more than £750
  • Asked for payment in writing
  • Failed to pay in 21 days
• Administration order

Question 6

Remidies for secured debenture holder

Answer 6

• Same rights as unsecured plus:
• Fixed charge - take possessions and or sell the asset that form the security
• Floating charge - appoint out of court administrator

Question 7

Fixed charge

Answer 7

• Attaches to specific asset as soon as charge is created
• Any business can grant fixed charge
• Best suited to long term assets (land/buildings)
• Ranks first in event of liquidation

Question 8

3 options for fixed charge asset disposal

Answer 8

• Repay the secured debt out of proceeds of sale
• Pass the fixed charge to the purchaser along with the asset
• Transfer the fixed charge to alternative asset

Question 9

Floating charge

Answer 9

• Charged on a class of assets
• Assets subject to the floating charge may change day to day
• Cannot be identified until crystillisation
• At crystilisation date assets subject to floating charge become avalible to the holder as repayment of debt

Question 10

When must a charge be registerd and by who?

Answer 10

• 21 days of creation at companies house to be enforceable
• Likely the creditor will undertake this as they have particular intrest in charge being registered

Question 11

What charges take priority

Answer 11

1. Fixed charge
2. Subsequent fixed charge
3. Floating charge

• Subject to negative pledge clause

Question 12

Share definition

Answer 12

• Transferable form of property which carries rights and obligation and which measures the intrest which a member of the company has in the company

Question 13

6 Rights of ordinary shareholder

Answer 13

• Right to attened general meetings
• Right to vote and general meetings
• Rights to dividends
• Rights to surplus assets on a winding up of company
• Right to transfer the shares
• Rights of membership attached to the shares

Question 14

Rights of preference shareholders

Answer 14

• Right to receive annual fixed dividend
• Right to captial before ordiany shareholders during winding up
• Dividends cummulated to futures years if compant cannot pay
• No ownership and no voting rights

Question 15

Redeemable shares

Answer 15

• Shares bought back by the company at option of shareholder or company
• Does not dilute ordinary shareholders
• Useful exit option for investors
• Cannot have all reedeemable shares

Question 16

Treasury shares

Answer 16

• Companys own shares bought back but not cancelled
• Cannot exercise voting rights or reeive dividends
• Can be cancelled sold or transfered to an employee share scheme
• Can only be sold for cash

Question 17

Types of share capital

Answer 17

• Issued and alloted share capital - Actual number of shares that has been issued
• Called up share capital - Amount which is yet to be paid
• Paid up share capital - Amount actualy paid
• Uncalled share capital - Company has not requested payment yet

Question 18

3 ways a person can become a shareholder

Answer 18

• Subscribing to the memorandum
• Agreeing to become a memeber at a subsequent date
• Transmission of shares

Question 19

4 ways membership cease

Answer 19

• Transfer all shares to another person
• Death
• Minior refuses to accept their shares
• Company dissolved

Question 20

Shareholders may object variation of rights

Answer 20

1. Objectors must hold at least 15% of issues share class
2. Must not have consented or voted in favour of variation
3. Apply to court within 21 days of consent

Question 21

Share premium money may be used?

Answer 21

• To pay up fully paid bonus shares
• To pay off the compans preliminary expense

Question 22

Statutory pre-emption rights

Answer 22

• First offer those share to existing holders
• To ensure that issue of further ordianry shares to others does not dilute the rights of existing ordinary shareholders

Question 23

Rights issue

Answer 23

• Approach exsiting ordianary shareholders and offer them new issue pro rate to their existing holding
• Shares not taken u within offer period (usually 21 days) then offered to outsiders
• Shareholders can disapply their pre-emption rights

Question 24

Bonus issue

Answer 24

• Issue of new free shares to exsiting shareholders
• Throught the capitalisation of compant reserves
• Usually restricted to ordinary shareholders
• No dilution occurs