Raising equity

Question 1

Mention 3 methods for raising equity

Answer 1

1. allotting shares
2. financial assistance
3. buyback of shares

Question 2

Name 2 types of charges that can be used for debt finance?

Answer 2

1. fixed charge
2. floating charge

Question 3

Name the 5 steps for allotting shares

Answer 3

1. check for cap in Articles
2. directors authority
3. pre-emption rights
4. issuing new class
5. allot shares

Question 4

When does a company have an automatic directors authority to allot shares? (2)

Answer 4

i. private company with
ii. one class of share

Question 5

What type of resolution is needed to give director authority to allot shares?

Answer 5

SH ordinary resolution

Question 6

What type of shares must pre-emption rights be dissapplied? Give an example. What type of resolution is needed to dissapply pre-emption rights

Answer 6

1. equity securities (uncapped dividend and capital)
2. ordinary shares
3. SH special resolution

Question 7

What are equity securities?

Answer 7

shares that are uncapped to both dividend and capital

Question 8

What type of resolution is needed if a company is issuing a new class of shares?

Answer 8

SH special resolution - to amend the articles and set out rights attached

Question 9

What step will always be needed when allotting shares?

Answer 9

step 5: board resolution to allot the shares

Question 10

What type of transaction is financial assistance relevant? (3)

Answer 10

1. share transfer
2. company issues shares to investor
3. any other form of financial assistance e.g. loans, security

Question 11

What are the steps to identify if there is a prohibition on financial assistance? (3)

Answer 11

1. identify target company
2. If plc, applies to both target and any subsidiary, whether private or public
3. If private, applies to any plc subsidiary

Question 12

What are the exceptions to the general prohibition on financial assistance to acquire shares in a holding company? 3)

Answer 12

1. Incidental part of larger purpose of company
2. Principal purpose in giving assistance is not for the acquisition
3. Money lending in ordinary course of business AND i) private company; or ii) public company whose net assets are not materially reduced

Question 13

What are the consequences for breach of financial assistance? (3)

Answer 13

1. Fine
2. Imprisonment
3. Void transaction

Question 14

What are the 3 ways to fund a buyback?

Answer 14

1. Distributable profits
2. Fresh issue of shares
3. Capital (private companies only)

Question 15

What are the 7 steps to buyback shares out of profit? What resolutions are needed? (4)

Answer 15

1. initial checks
2. draft contract - BR
3. inspection period - 15 days before GM + at GM
4. SH approve contract at GM - OR (can also use WR)
5. enter contract - BR
6. sign contract (director) - BR
7. PMM - cancel shares + update register of members

Question 16

What are the initial checks for buyback out of profits? (3)

Answer 16

1. Articles: limits on buyback
2. Distributable profits
3. Fully paid up

Question 17

What are the additional steps that must be taken when funding buyback using capital? (3)

Answer 17

1. approve + sign DDS and AR (BR)
2. notice in Gazette and national newspaper
3. payment out of capital must take place within 5-7 weeks after SH OR

Question 18

When must the DDS and AR be signed?

Answer 18

No earlier than 1 week before the GM or the passing of the WR

Question 19

When must a notice be put in the Gazette and national newspaper?

Answer 19

Within 7 days of passing OR at GM

Question 20

When must you check for distributable profits when funding a buyback using capital?

Answer 20

no earlier than 3 months before the directors prepare the DDS

Question 21

What filings take place at CH when buyback using capital? (2)

Answer 21

1. DDS and AR
2. OR

Question 22

What 3 documents must be available for inspection at the GM (capital buyback)?

Answer 22

1. contract
2. AR
3. DDS