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Company Law > Share & Share Capital > Flashcards

Share & Share Capital Flashcards

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1
Q

What is a share?

A
  1. S.541 CA2006 = a share constitutes personal property so once allotted & issued belongs to the shareholder not the company
  2. Colonial Bank v Whinney 1886 = courts confirmed that the type of personal property is ‘a thing in action’
  3. Borland’s Trustee v Steel Brothers 1901 = A share is the interest of a shareholder in the company measured by a sum of money for the purpose of liability first & interest second
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2
Q

What is a nominal value and the relevant section of the CA2006?

A

the minimum value that a share can be allotted for

S.542 CA2006 = shares in a limited company must each have a fixed nominal value

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3
Q

What is share premium?

A

Shares are often allotted for more than their nominal value, and the excess is the share premium

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4
Q

What is authorised share capital?

A

The maximum nominal value of shares a company can issue

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5
Q

What is allotted share capital?

A

Total nominal value of shares that have actually been allotted

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6
Q

What is issued share capital?

A

Total nominal value of shares that have been issued

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7
Q

What is unissued share capital?

A

Difference between issued share capital and authorised share capital

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8
Q

What is paid-up share capital?

A

total nominal value of the shares that has actually been paid up

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9
Q

What is called-up share capital?

A

the paid-up share capital plus the amount called for/instalment amount due

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10
Q

What is uncalled share capital?

A

the amount that the company can call on before the shares are fully paid

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11
Q

What are the 2 ways a person becomes a shareholder?

A

A person becomes a shareholder by:

1. Having new shares appointed to them
2. Acquiring existing shares from an existing shareholder
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12
Q

When are shares allotted?

A

when a person acquires the unconditional right to be included in the register of members

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13
Q

When are shares issued?

A

when the person’s name is entered into the register of members

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14
Q

Who has authority to allot shares? What does s.550 and 551 CA2006 say?

A

Directors decide to allot shares on behalf of the company

S.550 CA2006 = private company with only 1 class of shares = directors authorised to allot more shares of the same class

S.551 CA2006 = all other cases, authority must be stated in articles or given via a resolution of the company
Art.22 MA Private; Art.43 MA Plc = ordinary resolution

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15
Q

What 3 things can authorisation be for the allotment of shares and 2 things it must state?

A

Authorisation can be:

  1. Given only for a specific allotment or granted to the directors generally
  2. Unconditional or subject to conditions; and
  3. Revoked or varied at any time by an ordinary resolution of the company
  4. Must state maximum amount of shares that may be allotted
  5. Must specify the date the authorisation will expire (max 5 years but can be renewed for a further 5)
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16
Q

What does s.555 CA2006 say about the allotment of shares?

A

S.555 CA2006 = company must deliver form SH01 to CH within 1 month providing details of the allotment

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17
Q

What is a pre-emption right and what does s.561 CA2006 say?

A

They prevent existing shareholder’s voting rights being diluted by a new share allotment

S.561 CA2006 = a company must not allot equity securities to a person without:

  1. First making an offer to existing ordinary shareholders to allot to them, on the same or more favourable terms, a proportion of the securities equal to the proportion of their existing shareholding
  2. The acceptance period expiring or the company receiving notice of acceptance/refusal from every offer made
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18
Q

When do pre-emption rights not apply (3) and who can ignore them?

A

Share allotment types not subject to pre-emption rights:

  1. Bonus shares
  2. Non-cash shares
  3. Shares allotted as part of an employee share scheme

S.567 CA2006 = private companies with 1 class of shares can exclude pre-emption rights from their articles

Directors may ignore pre-emption rights if articles allow or are permitted to via special resolution of the company

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19
Q

What does Art.52, 53, 58 and 59 MA for plc say about payment for shares regarding allottees?
What is the consequence?

A

Art.52, 53, 58 and 59 MA for plc = if allottee fails to pay within 14 days, the company:

  1. Has a lien over any partly-paid shares and can sell them
  2. Can send the allottee notice of intended forfeiture and forfeit the shares - Can then sell, re-allot, or otherwise dispose of

Allottee no longer a member but still liable for sums payable

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20
Q

What does S.582 CA2006 say about the means of payment for shares and what must a plc not accept as payment?

A

S.582 CA2006 = shares may be paid up in money or money’s worth (e.g. goodwill and know-how)

A plc must not accept:

  1. An undertaking that is to be performed more than 5 years after the allotment as payment
  2. Non-cash consideration as payment
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21
Q

Can shares be allotted at a discount? (i.e., less than nominal value?) what will happen?
If so, when?

A

S.580 CA2006 = shares must not be allotted at a discount (less than their nominal value)
If are, allottee is liable to pay the company the discount plus interest

Only permissible form of discount = where company pays commission provided that:

  1. Payment of commission is authorised by articles
  2. Rate used is no more than 10% of the issued share price, or the rate authorised by the articles. Whichever is lower
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22
Q

What does s.769 say about share certificates?
When is one not required? (3)
What are the 2 functions?

A

S.769 CA2006 = within 2 months of an allotment, company must deliver share certificate to relevant holders
Failure = criminal offence

No share certificate required if:

  1. Conditions of the allotment provide no share certificates
  2. The shares are allotted to a financial institution
  3. The shares are uncertified

2 functions:
1. Provides basic information about the shares
2. Provide prima facie evidence that the person named holds the legal title to the shares
(Conclusive evidence = register of members)

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23
Q

What does s.755 CA2006 say? What are the consequences of a breach? (4)

A

S.755 CA2006 = Private companies cannot offer, allot or agree to allot any securities to the public

Breach = allotment remains valid but the courts can order the company to:

  1. re-register as public
  2. Be wound up
  3. Stop contravening
  4. Or make a remedial order
24
Q

What is an advantage and disadvantage of offering shares to the public?

A

Advantage = can raise money through issuing new shares

Disadvantage = subjected to heavier regulation (especially if trade on a stock exchange)

25
Q

What are the 3 EU Law Directives in relation to offering shares to the public?

A
  1. The Consolidated Admission and Reporting Directive = harmonises the rules of listing of securities
  2. The Prospectus Directive = sets out prospectuses rule
  3. The Transparency Obligations Directive = disclosure rules for companies trading on a regulated market
26
Q

What does the FSMA2000 do and require?

A

Regulates financial services = requires ‘regulated activities’ to be undertaken by authorised persons
FSMA2000 = establishes Principal regulator = FCA

27
Q

What are the 2 key functions of the FCA?

A
  1. Determines which securities are admitted to the official list, and maintains the official list
  2. Empowered to make rules in order to achieve its objectives
28
Q

What are the 3 rules listed in the FCA Handbook Block 7?

A
  1. The Listing Rules = rules for listing shares and listed companies
  2. The Prospectus Rules = preparation and publication of prospectuses rules
  3. The Disclosure Guidance and Transparency Rules (DTRs) = disclosure obligations for listed companies
29
Q

What may the FCA do for a breach of the rules in FCA Handbook Block 7? (3)

A
  1. impose a financial penalty as it thinks fit
  2. publish a statement censuring the person in breach
  3. suspend or discontinue a listing of securities
30
Q

What is an Initial Public Offering?

A

Initial Public Offering (IPO) = first time company offers shares to the public

31
Q

What is an offer for subscription / offer to the public?

A

Offer for Subscription (AKA Offer to the public) = the company makes a direct offer to the public to subscribe for shares

32
Q

What is an offer for sale?

A

Offer for sale = an investment bank subscribes for all the shares being offered, then the bank offers those shares to the public

33
Q

What is a placing?

A

A placing = an investment bank ‘places’ its shares with selected purchasers (normally institutional investors selected by the bank), rather than offering to the public at large

The bank identifies who may wish to purchase the shares, but will usually agree to purchase any shares that are not placed

34
Q

What is a rights issue? What is an open offer?

A

A Rights Issue = company offer shares to existing shareholders in proportion to their existing shareholding (pro rata)

Shareholders who choose not to take up the rights offer can sell the right to purchase the shares to another person

If the shareholder does not have this right = an open offer

35
Q

What are the 2 principle markets of the LSE? Where else might a company trade?

A
  1. The Main Market = only listed securities can be traded
    ○ Usually for larger, well-established companies
    ○ Companies must comply with the Rules of the LSE
  2. Alternative Investment Market (AIM) = unlisted securities are traded and subject to less regulations
    ○ Aimed at smaller and medium- sized companies
    ○ Companies usually trade on AIM first then progress to Main Market
    ○ Companies must comply with the AIM Rules for Companies

A UK company can trade on a stock exchange outside then UK or on several exchanges

36
Q

What is an underwriting? What is an advantage and a disadvantage?

A

An underwriting agreement = the underwriter (usually an investment bank) agrees to subscribe or purchase any shares that are not taken up by the public

Advantage = the company knows all the shares offered will be subscribed for or purchased

Disadvantage = the underwriter will charge the company commission

37
Q

What are listed securites?

A

Listed securities = those that are admitted onto the official list maintained by the FCA

38
Q

What does Listing Principle 1 and 2 say?

A

Listing Principle 1 and 2 = a listed company must:

  1. Take reasonable steps to establish and maintain adequate procedures to enable it to comply with its obligations; and
  2. Deal with the FCA in an open and co-operative manner
39
Q

What are the 5 criteria for a standard listing? (5)

A

Eligibility for standard listing:

  1. Company must be duly incorporated and operating in accordance with constitution
  2. Shares must comply with the law where the company was incorporated
  3. Shares must be freely transferable and fully paid
  4. Shares expected aggregate must be at least £700,000
  5. An FCA-approved prospectus must be published
40
Q

What are the 6 Premium Listing Principles?

A
  1. Take reasonable steps to enable directors to understand their responsibilities and obligations
  2. Act with integrity towards holders and potential holders of its premium listed equity securities
  3. All premium listed equity shares in a class must carry an equal number of votes
  4. If more than one class, the voting rights in each class should be proportionate to the interests of those classes in the company’s equity
  5. Ensure company treats all holders of the same class equally
  6. Communicate information to holders and potential holders of its premium listed equity securities to avoid a false market
41
Q

What is the Listing Process set out in LR3?

A
  1. Companies book a date for its listing application to be heard
  2. Two days before this date, the company must submit to the FCA:
    a. An application for Admission of Securities to the Official List
    b. An approved prospectus
    c. Any circular that was published in connection with the application
    d. Written confirmation of the number of shares to be allotted
  3. The FCA will notify the company of its decision within six months
  4. If successful = FCA admits the shares to the official list and notifies the company in writing
  5. If not successful = The company may appeal to the Upper Tribunal
42
Q

What is a prospectus? What are 2 advantages?

A

Recital 18 Prospectus Directive = a prospectus provides full information of securities and their issuers

2 advantages:

  1. protects investors
  2. increases confidence in securities and the market
43
Q

When is a prospectus required? Provide 2 exceptions

A

S.85 FSMA2000 = transferable securities cannot be offered to the public or requested to trade on a UK regulated market unless an approved prospectus is made available before the offer/request is made
Breach = an offence

Exceptions were a prospectus is not required include:

  1. shares are only offered to qualified investors
  2. offer is made to fewer than 150 persons
44
Q

What is the format and content of the prospectus?

A

PR 2.2.1 = format = prospectus can be drawn up as a single document or divided up into separate documents

PR 2.2.2 = content = if divided, 3 separate documents are required:

  1. The registration document = information about company issuing the shares
  2. The securities note = information about the shares
  3. The summary = conveys key information about the securities clearly, in non-technical language, and in an appropriate format to aid investors’ investment decision
45
Q

What does S.87A FSMA2000 and RP 2.3.1 set out about the content of the prospectus?

A

S.87A FSMA2000 = sets out the key information required, but will mostly depend on the nature of the shares and the company issuing them

RP 2.3.1 sets out the bare prospectus every company must provide and then ‘building blocks’ may be additionally required

46
Q

What 3 criteria must the prospectus satisfy to be approved by the FCA? When will it be available to the public? What is the benefit of gaining FCA approval?

A
  1. The UK is the company’s home state
  2. The prospectus contains the necessary information
  3. All the other relevant requirements in Part VI FSMA2000 or the Prospectus Directive have been complied with

If FCA refuse approval they must state why
If approved, the prospectus is then made available to the public as soon as practicable

Benefit of gaining FCA approval = the prospectus will be approved in all other EEA states (‘Passporting’)

47
Q

What does s.90 FSMA2000 say about who is liable to who and for what regarding the prospectus? What loses can be claimed for?

A

S.90 FSMA2000 = any person responsible for the prospectus is liable to pay compensation to a person who has:

  1. Acquired securities to which the prospectus applies; and
  2. Suffered a loss as a result of:
    a. any untrue or misleading statement in the prospectus; or
    b. the omission from the prospectus of any required information

Unforeseeable losses can be claimed for
Nothing in s.90 affects any other form of liability

48
Q

Where can liability for the prospectus not be imposed?

A

Liability cannot be imposed where:

  1. the person responsible for the prospectus reasonably believed that the statement was true / not misleading, or that the information that was omitted was properly omitted
  2. the person who suffered the loss acquired the securities knowing that the information in the prospectus was false or misleading, or knew that it contained omitted material
49
Q

What amounts to a variation of a class right?

A

White v Bristol Aeroplane Co Ltd [1954] = there is a distinction between an alteration that affects a class right, and an alteration that affects the enjoyments of a class right

Only an alteration that affects a class right is capable of amounting to a variation

50
Q

What are the 2 ways to vary a class right? What must members/shareholder take into account?

A 
S.630 and 631 CA2006 = 2 ways to vary class rights: 
1. By complying with the articles if contain a provision stating how to vary class rights (model articles don't provide)
2. Obtain consent from the shareholder / members of that class
	○ Consent can be:
§ In writing from the holders of at least 3/4 in nominal value of shares of that class (at least 3/4 of the members of that class if no share capital)
§ Via a special resolution passed at a class meeting
Shareholders/members must decide whether the dominant purpose of the variation is to benefit the class as a whole.
If they do not do so, the variation may be invalidated
51
Q

What is the right of objection in relation to variation of class rights?

A

Shareholders/members who did not consent to the variation can apply to the court to object to the variation, provided that they represent:

  1. not less than 15% of the issued shares of the class of shares in question (in the case of a company with a share capital); or
  2. not less than 15% of the class of members in question (in the case of a company without a share capital)
The variation will have no effect until it is confirmed by the court.
Court may disallow if variation would unfairly prejudice the class represented by the applicant(s)
52
Q

When are shares transferred?
What is the most common way?
Where can the rules for transfers be found?

A

Shares are transferred where they pass from one person to another and this is not by the operation of law

Most common way = shareholder sells some or all of their shares to another person

S.544 CA2006 = a company’s shares are transferable in accordance with its articles
Articles may limit the ability to transfer shares

53
Q

What is the process of transferring certified shares?

A

S.770 CA2006 = a company will not register a transfer of shares unless it has received a proper instrument of transfer e.g. Stock Transfer Form (STF)
• Process:
1. Member and purchaser agree terms of transfer
2. Members completes the STF and signs it
3. Purchaser pays for the shares
4. Members sends STF and share certificate to purchaser
5. Purchaser pays stamp duty and stamps STF
6. Purchaser sends STF and the share certificate to the company
7. The company registers the transfer of shares and provides a new share certificate to the purchaser

54
Q

What is the process of transferring uncertified shares?

A

Process under CREST:
1. Member and purchaser agree terms of transfer
2. They instruct CREST to transfer the shares
CREST checks if instructions of both parties match, and whether the member has the shares in question.
3. On the specified date, CREST transfers the shares from the member’s to the purchaser’s account and the agreed price from the purchaser’s to the member’s account
4. Euroclear’s register of members will be updated to reflect the transfer, and the company notified that it needs to update its register of members

55
Q

When are shares transmitted and the 3 situations this occurs in?

A

Shares are transmitted when a person acquires them by an operation of law
Occurs in 3 situations:
1. The death of a shareholder
○ Shares are transmitted to their personal representative who transfers them to others in accordance with the will
2. When shareholder has been declared bankrupt
○ Shares are transmitted to their trustee in bankruptcy who sells them to pay off the bankrupt’s debts
3. When a shareholder becomes a patient under the Mental Health Act 1983
○ Shares are transmitted to a receiver appointed by the Court of Protection

Company Law (18 decks)

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