PowerPoint Revision Flashcards
1
Q
If asked a question on this (rights of ordinary shares, preference shares and debentures) introduce it before you start
A
- all ways of financing a company
- various methods to finance the company, a company needs finance in order to carry out the operation that it needs to meet the goal
- the essential distinction on company law is between share capital, that is provided by the members of the company, and loan capital which the company borrows from outsiders
2
Q
Ordinary shares
A
- interest of a shareholder in a company measured by a sum of money
- if the constitution of a company states no difference between shares, its assumed that they are all ordinary shares with parallel rights and obligations. (May be other shares in future)
- ordinary shares entitle the holders to remaining divisible profit in liquidation after priority interests have been satisfied
3
Q
Ordinary share capital
A
- when companies issue shares they may not require the full nominal value of shares to be paid at once (encourages more purchases in future)
- represents the maximum liability of a shareholder
- this allows the company the possibility of raising further capital from its members
- If the shares are fully paid up then the shareholder has no further liability towards meeting the company’s debts
- put shareholders off if you demand all paid upfront as may not have that money straight away
4
Q
Ordinary shares- return on shares
A
- If the company is profitable, they benefit from dividend payment as market value of their shares will go up
- if the company does not do well, they may well not receive any payment and the value of their shares will diminish
5
Q
Ordinary shares- rights
A
- more rights than preference shares
- entitled to attend and vote at general meetings
- elect and dismiss the directors of the company
- have first choice on new shares issued by the company
- shares in public limited companies are freely transferable, but share in private companies have limits on transfer of shares to existing members
- company cannot buy own shares from its members
6
Q
Preference shares
A
- preference shares are shares carrying one or more rights (fixed rate of dividend or preferential claim to any company profits available for distribution)
- represent a more secure form of investment than ordinary shares because they receive a fixed rate of dividend before any payment is made to ordinary shareholders
- priority over ordinary shares with regard to repayment of capital
- good for people you want to buy shares in your company but doesn’t want them to ruin it
7
Q
Preference shares- rights
A
- preference shareholders cannot insist on receiving a dividend payment, but their dividends are cumulative so if failure to pay dividend in one year it has to be made good in subsequent years
- even tho are members, voting rights are restricted to any period when their dividends are in arrears as may vote with bitter bias if haven’t received dividends
- sometimes give right to vote depends upon company
8
Q
Priority distributing assets in liquidators (members)
A
- debentures
- members (preference)
- members (ordinary)
9
Q
Debentures
A
- debentures are documents that acknowledge the company’s indebtedness
- they lend money to the company so they are its creditors
- entitled to receive interest, whether the company is profitable or not. Can use company’s capital to pay debenture interest.
- company to provide security for the amount it has borrowed by issuing debentures
- two methods of securing debentures are by fixed charges or floating charges
10
Q
Debenture- rights
A
- no right to attend or vote at company meetings. They will be in the position to exercise more power if the company fails to pay interest on the loans
- can be issued at a discount of nominal value
- no right to object to the company making further loans and securing those loans
11
Q
What cannot be paid out of the company’s capital
A
- ordinary shares
- preference shares
