Share capital

Question 1

How can a company raise money?

Answer 1

By issuing shares or borrowing

Question 2

Russell v Northern Bank Development Corp Ltd 1992

Answer 2

A company may not fetter its right to exercise its statutory power to increase its share capital

Question 3

A share

Answer 3

An interest in the company measured by a sum of money

Question 4

Nominal value of the share

Answer 4

The measurement of the shareholder’s rights against the other shareholder

Question 5

The holder of a non-voting share is not precluded from…

Answer 5

Attending and voting at a separate general meeting of the holders of the particular class of which he is a holder

Question 6

How is a dividend usually paid?

Answer 6

In proportion to the amount paid up on the nominal value of the share

Question 7

A right to receive a dividend in priority to other classes of share is normally called a…

Answer 7

Preference dividend

Question 8

Usually, he right to participate in surplus assets on winding up will be in proportion to…

Answer 8

The amount paid up on the nominal value of the share

Question 9

Where are the rights attaching to shares found?

Answer 9

In the articles or sometimes in the resolution creating the shares

Question 10

Ordinary shares

Answer 10

Normally, they carry no special rights except for the right to participate in a dividend, to attend and vote at general meetings and to participate in the surplus assets on winding up

Question 11

Preference shares

Answer 11

They will have special rights attached to them, e.g. entitlement to a fixed dividend or no right to vote at GMs

Question 12

Equity shares

Answer 12

Ordinary shares provided they are defined as shares upon which there is no limitation on their rights to participate in dividends or return of capital

Question 13

Bonus shares

Answer 13

Shares of any class allotted to existing members and paid for out of certain accounts of the company which CA permits a company to utilise in paying up bonus shares

Question 14

If the company has one class of share, the rights are usually contained in…

Answer 14

The articles and can be altered by special resolution

Question 15

White v Bristol Aeroplane Co Ltd 1953

Answer 15

A further issue of shares of the same class diluting the rights of the existing members of that class is not a variation

Question 16

Does the agreement to become a shareholder need to take a specific form?

Answer 16

No, unless required by the articles

Question 17

Whose decision it is to allot shares?

Answer 17

The directors’

Question 18

Three issues to consider before allotting shares

Answer 18

• does the company have sufficient unissued shares to allot?
• do the directors have authority to allot?
• do the shares have to be offered to existing shareholders first?

Question 19

Companies incorporated after October 2009 will be deemed to have…

Answer 19

Available share capital for allotment unless the articles expressly limit such availability

Question 20

In the case of private companies with one class of share, do the directors have authority to allot?

Answer 20

Yes, they may do so except to the extent they are prohibited by the articles

Question 21

What does the right of preemption mean?

Answer 21

That existing shareholders are able to preserve their same percentage holding in the company after the issue, provided that they have sufficient funds available to subscribe for the new allotment

Question 22

If a share is partly paid, the balance outstanding becomes payable when…

Answer 22

A call is made for payment of the whole or part or if called for in the liquidation of the company

Question 23

Can shares be issued at a discount?

Answer 23

No, if they are, the allotee is liable to pay the amount of the discount and interest

Question 24

Can shares be issued at a premium?

Answer 24

Yes, the premium is treated as part of the capital of the company

Question 25

Is a company obliged to recognise any interest in the share other than that of the registered member?

Answer 25

No

Question 26

Two stages of a transfer of a share

Answer 26

• the transfer between the transferor and transferee

- the registration of the transferee on the register of members so that he becomes the legal owner of the share

Question 27

When a transfer of shares of a company has been lodged with the company, the company must either…

Answer 27

Register the transfer or give notice (with reasons) of the refusal

Question 28

Does the share transfer instrument of a fully paid share need to be witnessed?

Answer 28

No, just executed by the transferor

Question 29

As regards share transfer instruments, it is necessary to ensure that… (3)

Answer 29

• only one share transfer is used for each class of share
• the form contains the names and addresses of the parties and the consideration for the transfer
• the form is signed by the transferor and handed to the transferee together with the relevant share certificates

Question 30

What happens after the completion of stage 1 of share transfer?

Answer 30

The beneficial ownership passed to the transferee but the transferor holds the legal interest as trustee for the transferee pending registration of the transferee as the holder of shares

Question 31

Can the directors refuse registration?

Answer 31

Yes, under MA

Question 32

Re Smith and Fawcett 1942

Answer 32

The court will not interfere with the power of directors to refuse the entering of the transferee on the register of members unless it’s not bona fide in the interests of the company as a whole

Question 33

Popely v Planarrive Ltd 1997

Answer 33

A notification of refusal out of time does not invalidate a valid exercise of discretion to refuse registration made within a reasonable time

Question 34

On registration of the transfer and the entry of the name of the transferee in the register of members…

Answer 34

A new share certificate will be issued in favour of the transferee