SGS 5: Equity Finance Flashcards

1. identify and explain substantive and procedural matters relevant to the allotment of shares by a private company; 2. analyse the features of different classes of share provided for in a company’s articles; and 3. analyse and explain the impact which certain features of shares will have on the detailed procedure required to issue the shares.

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1
Q

What is the 5 step checklist that has to be covered every time that shares are issued?

A
  1. Is there cap on number of share issues
  2. Is authority needed by company directors to allot shares
  3. Disapplication of pre-emption rights?
  4. New class rights be created for shares?
  5. Directors pass BR to allot the shares.

CADNB

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2
Q

What happens if there is a cap on the number of shares issued? When will this occur?

A
  • CA 1985 – YES – ‘authorized share capital’ – can remove under s121 CA 1985 by OR [deemed to be transferred into articles by s28 CA 2006]
  • CA 2006 – NO – no cap unless AoA applies a cap – can remove under s21 CA 2006 by SR
    • .: need to check AoA, Annual Return filed at CH/resolutions/memo 1985
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3
Q

What happens if the company directors need authority to allot shares?

A

▶ CA 1985 – YES – s80 by OR or as set out in AoA
▶ CA 2006 – YES – s549 – cannot allot shares unless:
o s550 – Private company with only ONE class of shares:
− Must issue only same class without further authority unless AoA permits
− This tends to be the default if the company has unamended articles – i.e. hasn’t added any new classes of shares.
− For 1985 companies – this section only applies if a specific ordinary resolution is passed by the members enabling the directors to have this power
o s551(1) – Authorization by the company
− Authorization by OR (s281(3)) unless AoA requires a higher majority
o s21 – Amend the articles by SR

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4
Q

Explain when pre-emption rights can be disapplied?

A

• S561 and s560(1)
• s561 – Cannot allot shares unless an offer has been made to existing shareholder on same or more favorable terms (only applies to equity security)
• s560(1) – Pre-emption only applies to ‘equity securities’
o These are all shares except those with limited rights to dividends and capital
○ Any other type of share is an ‘ordinary share’ and .: an equity security
o Need SR to disapply PE rights if no disapplication (s570(1)) in AoA (s21)
o s569, s70, s71 CA 2006; s95 CA 1985
• Check AoA – private companies can also disapply in AoA – s567 + s569 CA 2006 – but rare

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5
Q

What happens if new class rights have to be created for the shares?

A
  • Need to insert this into articles of association
  • Amend by special resolution
  • Draft rights for the shares under s21 CA 2006
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6
Q

Explain what has to happen when directors pass board resolutions to actually allot the shares?

A
  • Any requirement for shareholders resolution to be dealt with in BM
  • Need to physically allot shares
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7
Q

What are all of the possible resolutions in equity finance?

A
  1. SR/OR to remove cap on shares
  2. OR (to grant authority to allot)
  3. SR (to disapply pre-emption rights)
  4. SR (to grant new class rights)
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8
Q

Which documentation is the PP to draft and which letters need to be filed at Companies House?

A

− Offer letter of shares
− Application for shares (in response to the offer letter)
− Minutes of BM dealing with allotment
− SH01 form needs to be filed at CH – s555(2) within 1 month of allotment
o Recording new allotment
o Statement of capital – tells CH all the shares currently in issue
− File a statement of capital – s555(3)(b)
− Update register of members – s112 + s113 within 2 months – s554
− Send share certificate to new members – s769

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9
Q

Which other key rules relate to the issue and allotment of shares?

A
  • Any D who knowingly & willfully contravenes s549 or permits/authorizes contravention of a section > Criminal Offence & Liable for a Fine s549(4)(5)
  • No need to disapply pre-emption rights if allotment is being paid otherwise than in cash s565
  • Can revoke existing s551 authority by OR s551(4)(b) – even if authority is given in articles > no need for a SR
  • If revoked, any subsisting disapplication of PE is not valid s570(3)
  • Must pass OR under s551 before SR under s570 as can only disapply if authorizing to allot.
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10
Q

What are the 4 types of shares?

A

Cumulative
Participating
Preference
‘Ordinary Share’

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11
Q

What are cumulative shares?

A

– Accumulates every year even when no dividend is declared

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12
Q

What are Participating shares?

A
  • Rights to participate in surplus profits & assets on winding up
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13
Q

What are Preference shares?

A

Over ordinary shares over payment of dividend/capital on winding up

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14
Q

What are Ordinary Shares?

A

– under s560 – those which are not limited to a certain amount

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