Module 5 - Financial invesments and Products: Equity

Question 1

What do Articles of association contain? 6

Answer 1

Specify rights of shareholders, including right to:
Receive annual accounts
Notification of AGM
Voting, speak and Attend AGM
Share in assets on winding up
Transfer shares freely
Subscribe to new share capital
Share in profits

Question 2

Company law requirements PLC? 5

Answer 2

At least 2 directors (one natural person)
Over 16
One company secretary
Min issued share cap of £50k, 25% paid up.
Min one shareholder

Question 3

Company law requirements private limited company? 3

Answer 3

One natural director
Cannot offer shares to the public
Min one shareholder

Question 4

Order of payout in liquidation + examples

Answer 4

1 Fixed charge
2 liquidators costs
3 preferential creditors (salaries/pensions
4 fund pool for unsecured (50% of first £50k assets and 20% of net property between £10k and £600k)
5 Floating charge holders
6 unsecured creditors (loan stock)
7 subordinated loan stock
8 mezz debt

9 preference shareholder
10 ordinary shareholder

Question 5

Types of Ordinary shareholders

Answer 5

Ordinary: voting rights
+ Variable dividends

Non voting

Deferred shares: bot entitled to dividend until specified time or all ordinary dividends received specific level. Trade at a discount

Question 6

Preference share characteristics

Answer 6

No voting rights
Pay a fixed dividend.
Preference in winding up but only on nominal value

Question 7

Types of pref shares

Answer 7

CUMULATIVE
Unpaid dividends carried forward.
Ordinary divi cannot be paid until preference divi arrears paid
All preference deemed to be cumulative unless otherwise stated in A of Assoc

PARTICIPATING
Additional dividends can be paid, over fixed rate.

REDEEMABLE
Can be bought back by the company

CONVERTIBLE
convert into ords

Question 8

Features of ADRs

Answer 8

Bearer
Hybrid
Dollar denominated
Dividends converted into dollars
Exempt from stamp duty collect
ADRs trade in London and New York
GDRs issued by foreign cos listed on London and Lux exchange

Question 9

AGM routine business 4

Answer 9

Consideration of annual accounts
Declare dividends
Election of directors
Appointment of auditors

Question 10

When can you call a poll at shareholder meeting

Answer 10

10%shareholding

Question 11

Ordinary resolution requires how many votes?

Answer 11

Simple majority.

Question 12

Special resolution examples and number of votes

Answer 12

Name change, takeover, buybacks

75%

Question 13

Share register contains what info?

Answer 13

Owners name
Identifying number
Description of security
Number of shares held

Question 14

Dematerialised shares held what system

Answer 14

Crest

Question 15

Types of dividends 3

Answer 15

Cash

Scrip (receive shares instead of cash)

Enhanced scrip (incentivise shareholder to take stock over cash)

Question 16

Share buybacks: motivation and perceptions

Answer 16

MOTIVATION
Alternative to paying a Divi to return cash to shareholders

Profits post are distributed across smaller shareholding

If shares trading below NAV, can increase NAV/share with buyback

Nothing better to do with the cash but don’t want one off large dividend

Fewer shares + same Demand = higher price.

Often done when shares trading too cheaply

PERCEPTIONS
Good as capital gain not income

Bad because shows lack of reinvestment opportunity in the business

Increases EPS and DPS

Question 17

What is right of first refusal?

Answer 17

Existing shareholders must be offered ordinary shares, warrants of converts before they are offered to anyone else (public can remove with special resolution and private can remove from A of Assoc)