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P16. Shares Flashcards

1
Q

Which 5 bodies interact to form the regulatory structure of the UK financial services industry?

A

Treasury
Bank of England (BoE)
Financial Policy Committee (FPC)
Financial Conduct Authority (FCA)
Prudential Regulation Authority (PRA)

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2
Q

What governs offers of listed securities?

A

FSMA2000 and the Listing Rules

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3
Q

What is the concept of authorised share capital?

A

The pool of shares both issued and available to be issued

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4
Q

When was authorised share capital abolished?

A

CA 2006

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5
Q

How did abolishment of authorised share capital affect companies incorporated pre-2006?

A

Continues to act as a ceiling and is considered a restriction in the articles of the company

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6
Q

Define allotted share capital

A

Shares that the company has allotted

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7
Q

When are share considered alloted?

A

When the acquirer has the unconditional right to be included in the RoM

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8
Q

What is issued capital?

A

Total capital issued and take up by members, expressed in nominal value

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9
Q

8 potential alterations to share capital

A

Allot new shares
Subdivide or consolidate
Reconvert stock into shares
Redeem
Purchase own shares
Redenominate its share capital
Cancel its shares
Reduce its share capital

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10
Q

What is equity capital?

A

Issued capital of the company excluding any shares that have the right to participate in a dividend or return of capital only up to a specified amount

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11
Q

4 circumstances whereby shares can be returned to the company

A

Purchase by company
Redemption
Reduction of capital
Forfeiture

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12
Q

3 instances in which a company need not authorise the allotment of shares

A

Under employee share schemes
Arising on conversion of a security into shares
Private company with only one class of shares

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13
Q

What must be stated on authority to allot shares?

A

Maximum amount that may be issued
Date on which authority will expire, not being more than 5 years after authority is granted

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14
Q

Which type of resolution is required to revoke, vary or renew authority to allot?

A

Ordinary resolution

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15
Q

Which resolution is required to waive pre-emption rights, if they are not disapplied in the Articles?

A

Special resolution

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16
Q

Re. pre-emption rights, what is often sought at each AGM of a listed co?

A

Annual waiver of pre-emption rights up to an additional 5%

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17
Q

Guidance by the Pre-Emption Group recommends that annual disapplications of pre-emption rights are acceptable if… (3)

A

General authority is restricted to 5%
An additional 5% may be authorised , only to be used in connection with an acquisition or specified capital investment
Authority lapses at earlier of next AGM or 15 months after date of resolution

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18
Q

What does Pre-Emption Groups statement of principles say on three-year period use of pre-emption waviers?

A

Should be restricted to 7.5% of issued capital

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19
Q

Allotment process (5)

A

Ensure authority has been obtained
Supply and receive back application forms from those wishing to subscribe, with payment
Obtain board approval
Update the register of members and issue share certificates
File form SH01

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20
Q

Only provision regarding price of allotted shares

A

Cannot be below nominal value

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21
Q

When is part payment most commonly seen on allotted shares?

A

Where minimum amount payable on shares of non-traded public co is paid up (£12,500 rather than full £50,000)

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22
Q

Two ways in which shares can be paid for (buyback)

A

Money (or money’s worth)
By way of capitalisation of the company’s existing reserves

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23
Q

Public co’s prohibited from allotting shares for non-cash consideration, unless…

A

The consideration has been independently valued within preceding 6 months, and valuer’s report sent to allottee

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24
Q

Do private companies need to have non-cash consideration independently verified?

A

No, but there are exemptions

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25
1 example of exemption to (directors of) private companies being able to value non-cash consideration
Allotments made in merger issued in exchange for all assets and liabilities of another co
26
What must valuer's report state? (4)
Nominal value of shares being allotted Amount of any premium payable on shares Consideration valued, and method used Amount treated as paid up by non-cash consideration
27
What must sometimes be filed with form SH01?
Valuer's report (if there was one)
28
Which type of company can provide financial assistance for the purchase of its own shares?
Private companies, so long as not to provide assistance for acquisition of shares in its holding co if that company is public
29
What is the share premium?
The amount of the issue price in excess of its nominal value
30
In which 3 instances can share premium account be used?
Writing off expenses on issue of those shares Writing off commission paid on issue of those shares Paying up new shares allotted as fully paid bonus shares
31
What is a call on shares?
Process by which directors call on members to pay any amounts due on nil or partly paid shares
32
When might it be necessary to forfeit shares (should this be permitted by articles)?
If payments due are not paid (following call on shares)
33
On what electronic settlement system do public markets require shares to be traded on?
CREST
34
Role of the share registrar (6)
Shareholder liaison Registration Paying agent (distributing interest, cash, dividends or other payments) Record keeping Issuance and transfer (share certif functions) Meeting management (general meetings)
35
Role of share registrar - acronym
S R P R I M
36
When may a transferee have to sign an STF?
If the shares are not fully paid
37
What value must a transfer exceed to be liable to stamp duty?
£1,000
38
What is rate of stamp duty? Rounded to?
0.5%, rounded to nearest £5
39
For transfers liable to stamp duty, when does STF become valid?
Upon stamping, or when certified as exempt
40
Process for transfer of shares (5)
STF completed and signed by transferor Stamping from HMRC received if necessary (Stamped) STF and original share certif/indemnity provided to registrar Care taken to ensure any pre-emption rights on transfer are followed Board approval received Details entered in register of members
41
What is a transmission of shares?
Disposition of shares by operation of law, without any consideration
42
When are transmissions of shares most commonly found?
Upon death or upon bankruptcy
43
What is provided instead of STF on transmission of shares?
Proof of entitlement
44
What typically constitutes proof of entitlement in case of death?
Grant of Probate and letter of request from executor
45
Who is a personal representative in case of death?
An administrator of the estate, appointed in a Grant of Representation (a Grant of Probate is a type of which)
46
Procedure to follow after death of shareholder (5)
Notification of death provided to the company Company annotates account on register as 'deceased' Grant of Representation in form of Grant of Probate or Grant of Letters of Administration Executor/administrator requests the shares be registered in name/s of benficiary/ies RoM updated
47
When is a Grant of Letters of Administration issued instead of Grant of Probate?
When no valid will is left by deceased (or named executor is unable or unwilling to act)
48
Info which must be contained in a share certificate (5)
Unique serial number Name and number of company Name of holder Number and description of shares (inc. whether paid up) Date of certificate
49
How long do companies have to issue share certifs?
2 months after issue or transfer (necessary docs received)
50
Define distribution
Every description of distribution of a company’s assets to its members, whether in cash or otherwise
51
What must be shown before profits can be distributed?
That there are sufficient distributable profits
52
What is the most common form of distribution?
Dividends to the members
53
What is a dividend mandate?
The authority from the member to the company to pay dividends becoming due to an account at a specified branch of a specified bank - to avoid having to send cheque
54
What is a scrip dividend?
A dividend paid in the form of shares in the company. Company may have allowed members to elect this instead of standard dividend if authority to do so is contained in the articles
55
What is a dividend reinvestment scheme?
The shareholder signs a mandate stating that all dividends be paid to the company or registrar to be used to purchase shares in their name.
56
Why might company prefer dividend reinvestment scheme over scrip dividend?
Because a proportion of the costs are borne by the shareholder
57
Which companies should make an announcement of a dividend (confirming timetable)?
Shares traded on market
58
4 dates on dividend timetable
Announcement date Ex-dividend date - if shares transferred after this date, holder not entitled Record date Payment date
59
(shares) What is a warrant?
A document entitling the holder to subscribe for equity capital at some future date, at the price determined at time of issue
60
What is the difference between conversion rights under convertible loan stock, and subscription rights on a loan stock?
Subscription rights require additional money, and do not surrender the loan stock
61
4 advantages of employee share schemes to employer
Aligning employee and shareholder interests Aid employee retention and recruitment Remunerates employees in tax-efficient way Raises working capital
62
5 disadvantages of employee share scheme
Declining morale if share price falls Admin costs Dilution of ownership for existing members Risks of unrealistic expectations among employees Difficulty for employees to sell shares post-exercise if unlisted
63
6 common employee share schemes
Enterprise Management Incentive Company Share Option Plan Save As You Earn Share Incentive Plan Unapproved share options Growth shares
64
What does EMI stand for?
Enterprise Management Incentive
65
What is an EMI scheme?
Discretionary scheme allowing an award of share options with more favourable tax treatment than unapproved schemes
66
What is the most popular share scheme? Why?
EMI scheme - tax advantages and flexibility
67
Criteria to qualify to issue EMI options (2)
Max 30 mil assets Max 250 employees
68
What is the chief tax benefit of an EMI scheme?
No income tax or NI contributions charges on grant of options, and also on exercising (subject to some conditions)
69
What does CSOP stand for?
Company Share Option Plan
70
Advantage of CSOP
No tax or NI on granting or exercising
71
Why are EMIs more flexible than CSOPs? (2)
The option period for CSOPs is 3-10, whereas for EMIs the max is 10, but there is no minimum EMU options can be up to 250k, CSOP only 30k
72
What does SAYE stand for?
Save As You Earn
73
How does SAYE work?
Employees have options to contribute between £5 and £500 monthly for either 3 or 5 years in order to purchase shares at end of option period
74
What does SIP stand for?
Share Investment Plan
75
Is an SIP a share option plan?
No, shares are issued, not options
76
What is an unapproved share option?
Options on schemes which do not benefit from any tax incentives and are not subject to any external restrictions on grant, exercise or value
77
What are growth shares?
Share issued immediately with no vesting period Often subject to conditions such as length of service, which are set out in terms of issue or articles
78
7 typical features set out by scheme/plan rules
When the company can issue the options Which employees can be granted options Mechanism for determining exercise price When and how the options can be exercised Criteria establishing good vs bad leaver (will have consequences on ability to exercise after exit) Rules regarding transfer of options Details of what happens if change of control in company
79
Is shareholder approval usually required for adoption of share scheme?
Not usually. Directors can just establish, unless provision in articles state otherwise. Model articles don't say shareholder approval is required
80
What do model articles say on pre-emption rights to shares issued under share schemes?
Do not apply

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