Session 2 Flashcards
What are shares?
an allotment of shares is a contract between the company and a new/existing shareholder under which the company agrees to issue new shares in return for the purchaser paying the subscription price
a transfer is a contract to sell existing shares in the company between an existing shareholder and the purchaser. The company is not a party to the contract on a transfer of shares (with the exception of a sale out of treasury of treasury shares)
what is the procedure for the allotment of shares?
1) check whether there is a cap on the amount of shares
2) check whether company directors need authority
3) disapply pre-emption rights
4) amend articles if creating a new class of share
5) board will resolve to allot the shares
Lastly, attend to any filing.
What is financial assistance?
this is when the buyer needs help to fund purchase shares.
Have to look at target- company whose company is being bought.
If target if private, limited company, less restricted.
Financial assistance is allowed if part of a bigger transaction- narrowly construed.
How are shares bought back?
Governed by the doctrine of maintenance of share capital- company not allowed to purchase its own shares, unless it follows a strict procedure.
Only time it is allowed:
may use:
1) distributable profits
2) proceeds of a fresh issue of shares made for the purpose of financing the buyback; or
3) capital- highly regulated. Only private companies can do this and only when neither of the two above are possible.
What is the general prohibition under s19(1) FSMA
‘no person may carry on a regulated activity in the Uk… unless he is…
a) an authorised person; or
b) an exempt person’
s22(1) FSMA- an activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business and relates to an investment of a specified kind’
i.e a regulated activity = specified investment + specified activity
Order to check:
1) is the investment ‘specified’ under FSMA?
if yes
2) is the activity a ‘specififed activity’ under FSMA?
if yes
3) is the activity excluded under FSMA?
if no
4) does the activity fulfil the basic conditions is s.327 of FSMA and SRA scope Rule 2? if yes, exemption is possible; if no, authorisation is required.
Individual taxation
How do you work out an individuals income tax liability?
1) total income
2) less available tax reliefs (interest on qualifying loans and pension contributions)= NET INCOME
3) Less personal allowance (reduced by £1 for every £2 of net income above £100,000)= Taxable income (personal allowance =12,570)
4) split the taxable income into non-savings, savings and dividend income
(personal savings allowance of £1000 for basic rate. Higher rate of £500. Dividend allowance of £1000)
5) calculate whether the personal savings allowance is available.
6) apply relevant tax rate
7) Add together the amounts of tax calculated at 6)= Total tax liability.
How do you work out CGT?
Sale Proceeds/market value
Less disposal expenditure
= net sale proceeds
Less initial expenditure
Less Subsequent expenditure
= Total Chargeable Gain
Less carried forward or carried- across losses
Less Annual exemption (£6000)
=Taxable chargeable Gain
basic rate tax payers pay 10%
Higher and additional rate tax payers pay 20%
What are the 4 key reliefs for CGT?
1) Reduces the higher Rate of CGT from 20% to 10% for gains on qualifying disposals
2) Investors relief- reduces the higher rate of CGT from 20% to 10% for gains arising on disposals of qualifying shares, subject to a lifetime limit of £10 million
3) rollover relief (replacement of business assets relief)- defers liability to CGT
4) Hold-over relief (gift of business asset relief) defers liability to CGT
What is business property relief?
BPR is an exemption which applies to the value of qualifying business assets and is available to Lifetime transfers and the Death estate. Business property includes:
1) a business or interest in a business
2) shares in an unquoted company
3) shares in a quoted company
4) land or buildings, machinery or plant owned by transferor but used for business purposes by either a company of which the transferor has control or a partnership of which the transferor was a partner
The transferor must have owned the business assets for at least 2 years immediately prior to the transfer.
What is corporation tax?
VAT is charged on:
1) any supply of goods or services made in the UK
2) where it is a taxable supply
3) made by a taxable person
4) in the course of furtherance of any business carried on by that person
Output tax:
The VAT chargeable by a business when making a supply of goods or services is called output tax
Input tax
The VAT paid by a person on goods or services suppled to the person is called input tax
Types of supply:
1) standard rated- 20%
2) reduced rated- 5%
3) zero rated- 0%
4) exempt
Corporation tax:
payable on:
1) all income profits and
2) chargeable gains
3) of a body corporate
4) that arise in its accounting period.
The sum of a company’s profits and gains is known as TTP
The main corporation tax rate is 25% for companies with profits greater than £250,000 A small profits rate of 19% applies for companies whose profits do not exceed £50,000. If a company’s profits fall between £50,000 and £250,000 Marginal relief applies which has a tapering effect
to calculate TTP:
1)Chargeable gains: Sale proceeds
[Allowable expenditure, indexation allowance, Capital/trading losses] = Chargeable gain
2) Income profits: Income receipts [deductible expenditure, capital allowances, trading losses] = income profits
Income profits + chargeable gains = TTP
What is a close company?
A company will be a close company if it is under the control of:
1) five or fewer participators; or
2) any number of participators who are also directors
A participator is a person having a share or interest in capital or income of the company
Control means the ability to exercise control over the company’s affairs, normally by voting rights or the possession of or entitlement to:
1) issued share capital allowing the greater part (i.e more than 50%) of income of the company if distributed
2) the greater part of assets of the company on winding up
