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ruh oh > P16. Shares > Flashcards

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
Q

1 example of exemption to (directors of) private companies being able to value non-cash consideration

A

Allotments made in merger issued in exchange for all assets and liabilities of another co

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26
Q

What must valuer’s report state? (4)

A

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

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27
Q

What must sometimes be filed with form SH01?

A

Valuer’s report (if there was one)

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28
Q

Which type of company can provide financial assistance for the purchase of its own shares?

A

Private companies, so long as not to provide assistance for acquisition of shares in its holding co if that company is public

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29
Q

What is the share premium?

A

The amount of the issue price in excess of its nominal value

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30
Q

In which 3 instances can share premium account be used?

A

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

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31
Q

What is a call on shares?

A

Process by which directors call on members to pay any amounts due on nil or partly paid shares

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32
Q

When might it be necessary to forfeit shares (should this be permitted by articles)?

A

If payments due are not paid (following call on shares)

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33
Q

On what electronic settlement system do public markets require shares to be traded on?

A

CREST

34
Q

Role of the share registrar (6)

A

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
Q

Role of share registrar - acronym

A

S
R
P
R
I
M

36
Q

When may a transferee have to sign an STF?

A

If the shares are not fully paid

37
Q

What value must a transfer exceed to be liable to stamp duty?

A

£1,000

38
Q

What is rate of stamp duty? Rounded to?

A

0.5%, rounded to nearest £5

39
Q

For transfers liable to stamp duty, when does STF become valid?

A

Upon stamping, or when certified as exempt

40
Q

Process for transfer of shares (5)

A

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
Q

What is a transmission of shares?

A

Disposition of shares by operation of law, without any consideration

42
Q

When are transmissions of shares most commonly found?

A

Upon death or upon bankruptcy

43
Q

What is provided instead of STF on transmission of shares?

A

Proof of entitlement

44
Q

What typically constitutes proof of entitlement in case of death?

A

Grant of Probate and letter of request from executor

45
Q

Who is a personal representative in case of death?

A

An administrator of the estate, appointed in a Grant of Representation (a Grant of Probate is a type of which)

46
Q

Procedure to follow after death of shareholder (5)

A

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
Q

When is a Grant of Letters of Administration issued instead of Grant of Probate?

A

When no valid will is left by deceased (or named executor is unable or unwilling to act)

48
Q

Info which must be contained in a share certificate (5)

A

Unique serial number
Name and number of company
Name of holder
Number and description of shares (inc. whether paid up)
Date of certificate

49
Q

How long do companies have to issue share certifs?

A

2 months after issue or transfer (necessary docs received)

50
Q

Define distribution

A

Every description of distribution of a company’s assets to its members, whether in cash or otherwise

51
Q

What must be shown before profits can be distributed?

A

That there are sufficient distributable profits

52
Q

What is the most common form of distribution?

A

Dividends to the members

53
Q

What is a dividend mandate?

A

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
Q

What is a scrip dividend?

A

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
Q

What is a dividend reinvestment scheme?

A

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
Q

Why might company prefer dividend reinvestment scheme over scrip dividend?

A

Because a proportion of the costs are borne by the shareholder

57
Q

Which companies should make an announcement of a dividend (confirming timetable)?

A

Shares traded on market

58
Q

4 dates on dividend timetable

A

Announcement date
Ex-dividend date - if shares transferred after this date, holder not entitled
Record date
Payment date

59
Q

(shares) What is a warrant?

A

A document entitling the holder to subscribe for equity capital at some future date, at the price determined at time of issue

60
Q

What is the difference between conversion rights under convertible loan stock, and subscription rights on a loan stock?

A

Subscription rights require additional money, and do not surrender the loan stock

61
Q

4 advantages of employee share schemes to employer

A

Aligning employee and shareholder interests
Aid employee retention and recruitment
Remunerates employees in tax-efficient way
Raises working capital

62
Q

5 disadvantages of employee share scheme

A

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
Q

6 common employee share schemes

A

Enterprise Management Incentive
Company Share Option Plan
Save As You Earn
Share Incentive Plan
Unapproved share options
Growth shares

64
Q

What does EMI stand for?

A

Enterprise Management Incentive

65
Q

What is an EMI scheme?

A

Discretionary scheme allowing an award of share options with more favourable tax treatment than unapproved schemes

66
Q

What is the most popular share scheme? Why?

A

EMI scheme - tax advantages and flexibility

67
Q

Criteria to qualify to issue EMI options (2)

A

Max 30 mil assets
Max 250 employees

68
Q

What is the chief tax benefit of an EMI scheme?

A

No income tax or NI contributions charges on grant of options, and also on exercising (subject to some conditions)

69
Q

What does CSOP stand for?

A

Company Share Option Plan

70
Q

Advantage of CSOP

A

No tax or NI on granting or exercising

71
Q

Why are EMIs more flexible than CSOPs? (2)

A

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
Q

What does SAYE stand for?

A

Save As You Earn

73
Q

How does SAYE work?

A

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
Q

What does SIP stand for?

A

Share Investment Plan

75
Q

Is an SIP a share option plan?

A

No, shares are issued, not options

76
Q

What is an unapproved share option?

A

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
Q

What are growth shares?

A

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
Q

7 typical features set out by scheme/plan rules

A

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
Q

Is shareholder approval usually required for adoption of share scheme?

A

Not usually. Directors can just establish, unless provision in articles state otherwise. Model articles don’t say shareholder approval is required

80
Q

What do model articles say on pre-emption rights to shares issued under share schemes?

A

Do not apply

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