P4 - 16. Shares Flashcards
Which organisations have oversight of the UK financial services industry?
FCA
PRA
The Treasury
Bank of England
Financial Policy Committee
What is the name of the process through which the FCA supervises the employment of financial services
professionals?
Senior Managers and Certification Regime
What is the difference between allotted and issued share capital?
Allotted shares - investor has acquired an irrevocable right to be registered as the holder of the shares.
Issued shares - are those entered in the register of members and for which a share certificate or CREST credit has been issued
What is a company’s equity share capital?
These are the ordinary voting share capital
Can shares be issued at a discount?
Yes, up to 10%
If a call on shares is not paid what is the ultimate sanction available to the directors?
Forfeiture
If directors have full authority to issue additional shares what protection do existing members have from having their holding diluted?
Pre-emption rights on the allotment of new shares
When payable, what is the rate of stamp duty?
0.5% of the value of the consideration
What comfort does certification of a stock transfer form give to the purchaser of the shares?
Holder does hold sufficient shares to complete the transfer and
The company, or share registrar, is holding the share certificate
How long do companies have in which to issue share certificates following a share issue or share transfer?
Two months
Must shareholder addresses be shown on share certificates?
No
Cash dividend payments must be funded from what reserve?
Distributable reserves
Scrip dividends and dividend reinvestment schemes exchange the cash dividend for what?
Fully paid shares
Who are offered shares under a rights issue?
Existing members
If a member transfers their shares during the course of a takeover, what should happen to the form of
acceptance issued for those shares?
It should be forwarded to the transferor or their broker
Under which type of option scheme might an employee receive partnership shares?
Share incentive plan (SIP)
What main benefit do unapproved share options not enjoy compared to approved option schemes?
Tax relief either on issue of the options, on sale of the shares or both
What is the maximum monthly payment that an employee can make under an SAYE scheme?
£500
Who owns a company?
Its members
What are the five interacting bodies of the regulatory structure of the UK financial services industry?
The Treasury
Bank of England
(FPC) Financial Policy Committee
(FCA) Financial Conduct Authority
(PRA) Prudential Regulation Authority
What are the two different ways to secure funding?
Equity and debt
What is equity?
Funding raised through the issue of shares to private or institutional investors
What is debt funding?
Debt funding is loans owed by the company towards another party usually institutions but sometime
private individuals.
What is an example of equity?
Shares
List some examples of debt?
Term loan, debentures, bonds, loan notes
Different types of capital?
AA IP CE(D)
Authorised capital
Allotted capital
Issued capital
Paid-up capital
Called-up capital
Equity capital
(Debt capital)
What is a debenture?
s.738 - document that creates a debt or acknowledges a debt.
Once issued, how can shares be returned to the company?
- purchase by the company;
- redemption;
- reduction of capital; and
- forfeiture.
How can directors obtain the power to allot shares of a company?
Companies Articles
Passing a resolution
Criteria under which disapplication of pre-emption rights under s.570 is acceptable?
- general authority is restricted to an additional 5% of the issued capital;
- authority for a further 5% may be sought provided it is only used in connection with an acquisition or specified capital investment; and
- the authority lapses at the earlier of the next AGM or 15 months after the date of the resolution.
What should directors ensure before allotting shares?
Ensure that they have sufficient authority to allot shares
Any pre-emption rights on the allotment of shares are not infringed or, to the extent that they are, that the necessary waivers have been received, either in writing or by a members’ resolution (CA2006 ss. 550, 551, 561).
What is the general rule with regards to issued share pricing?
Shares cannot be issued below their nominal value (CA2006 s. 580).
Where are partly paid shares most common?
Non-traded public companies
What is the minimum amount payable on shares of a non-traded public company?
12,500 as opposed to £50,000
How may shares be paid for?
- in money or money’s worth, including goodwill and know-how (CA2006 s. 582(1)); and
- by way of capitalisation of the company’s existing reserves (CA2006 s. 582(2)).
When can a public company allot shares fully or partly paid for a non-cash consideration?
- allotments of shares made in a takeover by way of share exchange if the offer is open to all shareholders in the target (CA2006 s. 594);
- allotments of shares made in a merger issued in exchange for all the assets and liabilities of another company
(CA2006 s. 595); and - shares allotted under a capitalisation issue by the capitalisation of reserves or the profit and loss account (CA2006 s. 593(2)).
What must the valuation report state?
- the nominal value of the shares being allotted for the non-cash consideration;
- the amount of any premium payable on the shares;
- the consideration which has been valued and the method used to value it; and
- the amount of the nominal value of the shares and any premium treated as paid up by the non-cash consideration.
Which transactions are excluded from the general prohibition on public companies providing financial assistance for the purchase of its own shares?
The following transactions are excluded from the general prohibition (CA2006 s. 681):
1. distribution of assets by way of dividend;
2. distribution on a winding up;
3. allotment of bonus shares; or
4. redemption or repurchase by a company of its shares.
What service do share registrars/ transfer agents include?
- Issuance and transfer
- Record keeping:
- Registration
- Paying agent
- Shareholder liaison
- Meeting management
What is the process for transferring shares?
The transferee does not have to sign the stock transfer form - provided the shares are fully paid.
Company issue a new share certificate to the transferee in respect of the shares transferred
Majority of transfers facilitated by CREST system
When is stamp duty payable?
On transfers with a value of £1,000 or more at the rate of 0.5% of shares
What is a transmission of shares?
Disposition of shares by operation of law without any consideration
When do transmissions of shares usually occur?
Death
Bankruptcy
Becoming of unsound mind and the subject of an order of the Court of Protection
Corporate shareholder/ entity being wound up/ dissolved
What info should a share certificate include?
- a unique certificate serial number;
- the name and registered number of the company;
- the name of the registered holder(s);
- the number and description of the shares to which the certificate relates, including a statement as to the extent to which the shares are paid up; and
- the date of the certificate.
What are some of the HMRC approved share schemes?
EMI
CSOP
SAYE
SIP
List some of the most common share schemes
- Enterprise Management Incentive;
- Company Share Option Plan;
- Save As You Earn;
- Share Incentive Plan;
- Unapproved share options and
- Growth shares
What is an EMI?
Enterprise Management Incentive
Discretionary scheme allowing an award of share options with more favourable tax treatment than unapproved schemes. EMI schemes are the most popular due to their tax advantages and flexibility.
What is the Company Share Option Plan (CSOP)?
A CSOP scheme is also a discretionary scheme also offering tax incentives.
CSOPs may be offered by any company regardless of size.
What is the Save As You Earn (SAYE)?
An SAYE scheme must be made available to all employees although this can be subject to an initial period of
employment of up to five years.
Under an SAYE scheme, employees are granted options to buy ordinary, fully paid and unrestricted shares after three or five years of service with the company at a discount of up to 20% of the market value at the date of grant.
What are the four types of Share Incentive Plans SIP’s, that can be used alone or in combination?
- free shares;
- partnership shares;
- matching shares; and
- dividend shares.
Characteristics of an unapproved share options
Options under an unapproved share option scheme do not benefit from any tax incentives and
Are not subject to any external restrictions on their grant, exercise or value.
Characteristics of growth shares
On shares issued at a premium to the current value there should be no tax charge on issue
