Module 3 - Share and Loan Capital Flashcards
Debenture
any document that states the terms on which a company has borrowed money
Single debenture
A company simply obtains a secured loan or overdraft facility from its bank
Debentures issued in a series
Different lenders provide different amounts on different dates. Although all separate loans, lenders should rank equally in their right to repayment and in any security.
Ranking if debentures are not issued in a series
rank according to either their date of issue or in numerical order where more than one issues on same day
Registered debenture
Has its owner registered with the issuer, the owner’s name and contact info is recorded and kept on file
Debenture stock
Used only by a public company to offer debentures to the public. Made by way of prospectus. Each lender has a right to be rapid their capital at a due time and to receive interest until payment. Must maintain register of debenture holders and issue an allotment no later than two months after. certificates must also be completed and delivered within two months
Remedies to an unsecured debenture holder
- sue the company for debt and obtain a court order requiring payment (can seize property if unpaid)
- to present petition to court to have company wound up if owed more than 750, if they have asked in writing for payment and company fail to pay within 21 days
- to apply to the court for an administration order
Rights for a secure debenture
- the rights for unsecured
- in the case of a fixed charge, taking possession of and/or selling the asset
- in the case of a floating charge, appointing an administrator out of court
Charges
a charge or security over a company’s assets gives the creditor prior claim over other creditors to payment of their debt out of the value of these assets
Fixed charge
Attaches to a specific asset as soon as the charge is created
can be issued by businesses and individuals
best suited to assets which the company will retain for a long period
ranks first in event of liquidation
Floating charge
A floating charge is a charge on a class of assets - both present and future
can only be issued by a company
assets may change in course of business until enforced then it crystalises
good for the company because they can raise loan capital on the strength of all its assets - generates both loan capital and income
Registration of charges
Most fixed charges and all floating charges must be registered at companies house within 21 days of creation to be enforceable - failure to register means its void, may allow late register if it doesn’t prejudice the creditors or shareholders of the company
can be registered by the company or any person who has an interest in it
Priority of charges
- fixed will take priority over a subsequent fixed charge and any floating charge unless the floating charge was created before the fixed charge and has a negative pledge clause
Right of ordinary shareholders
- right to attend GM
- right to vote at GM (unless non-voting)
- right to a dividend if paid
- right to participate in surplus assets on winding up of company
- a right to transfer the shares in accordance with the articles
- rights of membership attached to the shares as defined in the articles
Rights of preference share holders
- prior right to receive annual fixed dividend
- no voting rights unless in limited circumstances
- don’t necessarily get a share in surplus assets on winding up
- may be convertible
Redeemable shares
Shares which at a future date at the choice of company or the shareholder can be bought back by the company
Can strengthen capital base without diluting interest of OS in long term
Useful exit route for investors
Cannot be entirely redeemable shares and cannot redeem if they aren’t fully paid
Treasury shares
company’s own shares which it has bought back but not cancelled (listed public co)
Can reissue these shares without going through usual formalities associated with issuing shares, cannot exercise voting rights or receive dividend
Must keep record in treasury share account
Can be cancelled, sold or transferred to an employee share scheme. If sold must be for cash
Called up share capital
A company may not ask shareholder to pay full amount of nominal value at once, therefore the called up cap is the total amount required to pay
In a public company on allotment what is the minimum paid up share capital
1/4 nominal value and full premium
How can a person become a member of a company
- subscribing to memorandum
- agreeing to become a member
- transmission of shares by operation of law
How can membership cease
- member transfers all shares
- member dies
- minor doesn’t accept shares when they get to 18
- company ceases to exist
When does the protective variation regime not apply?
when its the enjoyment of rights being varied rather than the rights themselves
When can rights be varied
- in accordance with company articles
- where the articles make no provision if the holders of at least 75% in nominal value consent in writing or by special resolution
When may shareholders object to the variation
if all of the following are true:
- objectors must not hold less than 15% of issued shares of class in question
- they must
general rule on transfer of shares
Transferable in accordance with the company’s articles
When must refusal of transfer be exercised
within two months after the date of transfer is lodged
When must directors obtain authorisation by members or articles
private companies with more than one class of share capital and all public companies
authority to allot may not be given for a period of more than what?
five years
when must an allotment be registered
within two months and a return to the registrar with a statement of capital within one month
What can the money in a share premium account be used for?
- to pay up fully paid bonus shares
- to pay off company preliminary expenses
Pre-emption rights
if a company proposes to allot equity securities wholly for cash it has a statutory obligation to first offer those shares to existing holders of the same or similar shares in proportion to their existing holdings
Rights issue
Each OS must be offered a part of the new issue pro rata to his or her existing holding
if not taken up within offer period (of 21) the shares may then be offered to outsiders
When can pre-emption rights be dis-applied
by special res or in the articles
bonus issue
capitalisation of the company’s reserves by issuing additional shares to existing shareholders pro rata
no new money but sum from company’s reserves
Shares alloted and any premium may be paid for in what?
money or money’s worth - goodwill ork now-how
When can a public company accept work or services as payment for shares?
only if discharging debt in respect of services already rendered
When can a public company allot shares for a non-cash consideration?
Provided an independent report on the value of the consideration has been obtained and the transaction has been approved by ordinary res
Distributable profits
Accumulated realised profits less accumulated realised losses, and in the case of a public company also unrealised losses
When can a public company make distribution?
If its net assets at the time when the distribution is made are not less than the aggregate of its called up share capital and un-distributable reserves
What is included in the undistributable reserves?
Share premium account and capital redemption reserve
What is the financial assistance rule and who does it apply to
A public company is prohibited from giving financial assistance for the acquisition of its own shares or those of its parent company
Criminal sanctions for breach of financial assistance provisions
- fine/imprisonment for directors
- fine for company
Exceptions to basic prohibiton of financial assistance
- if not principally to aid acquisition but is part of a larger purpose
- is part of ordinary business
- good faith in interest of company of financial assistance for the purposes of an employees’ share scheme
