SGS 8 - Financing a Company - Equity Finance Flashcards
What is Equity Finance?
Equity finance refers to a business issuing shares in order to raise funds to get the business started.
What are shares?
A share is often described as a ‘bundle of rights’.
By investing in the share capital of any company, the investor becomes a part owner of the company and
will often have voting rights in shareholder meetings.
The incentives for investing would be the receipt of income (by way of dividend) and a capital gain (by way of growth in the value of the company, and therefore the individual shares)
What is the nominal or par value of a share?
What does the CA 2006 stipulate with regards to a share’s nominal value?
- The minimum subscription price for that share.
- It represents a unit of ownership rather than the actual value of the share.
- Shares in a limited company having a share capital must have a fixed nominal value per Section 542(1) CA 2006
- Any allotment of a share that does not have a fixed nominal value is void per Section 542(2) CA 2006
Section 580 CA 2006 provides that a share may not be allotted/issued by a company at a discount to its nominal value. However, it may be allotted/issued
for more than its nominal value. The excess over nominal value is known as the ‘premium
What is the issued share capital (ISC)
The aggregate number of shares actually issued
What is a company’’s ISC made up of?
- Subscriber shares (shares purchased by the first members of the company)
- Further shares issued AFTER the company has been incorporated, to new or existing shareholders.
What is “allotment”?
Allotment is defined in s.558 CA 2006
Shares are said to be allotted when a person acquires the unconditional right to be included in the company’s register of members in respect of those shares.
When is full legal title to shares achieved?
Once a person’s name is entered in the company’s register of members.
What is the difference between allotting and transferring shares?
*It is crucial to remember the difference between an allotment and a transfer of shares as the procedure to effect an allotment and a transfer of shares is
different.
An allotment of shares is a contract between the company and a new/existing shareholder whereby 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.
Stamp duty is payable when the value of the transfer is at or over 1000 GBP, the Stamp Duty is payable at 0.5% of the consideration rounded up to the nearest £5.
What are Treasury shares?
These are shares that have been bought back by the company in its own and are held by the company ‘in treasury’. The company can later sell those shares out of treasury.
*Note - although such a sale of shares is a transfer and not an issue of shares, s.561 CA 2006 pre-preemption rights and s.573 CA 2006 disapplication of pre-preemption rights will apply.
What is the premium?
The excess over the nominal value
- s.580 states that shares are not to be allotted at a discount, but may be allotted for more than its nominal value at a market value which will often be much higher than the nominal value
Share certificate
On a share certificate, only the nominal value will be shown, the market value will not be shown on the certificate as it is subject to valuation
Allotting & Issuing Shares
Allotting - When a person acquires the unconditional right to be included in the register of members per s.558
Issuing - There is no statutory definition of ‘issue’, but it has been held that shares are only issued and form part of a company’s issued share capital once the shareholder has been registered on members’ register
DIFFERENCE BETWEEN:
Allotted - the right to have the name to be put into the register
Issued - name has been put into members’ register, or no full rights have been attached to those shares (i.e. voting rights
What is the Authorised Share Capital? (ASC)
The aggregate number of shares a company is permitted to issue
- CA 1985 required companies to have ASC
- How do you remove ASC for companies incorporated under CA 1985?
1. Alter the articles by OR
2. Adopt new set of companies, if really old company by SR
