Question 1

Why are shares called a "bundle of rights"?

Accepted Answer

The investor becomes a part owner of the company and will often have voting rights in shareholder meetings. Additionally, they receive the receipt of income (dividends) and a capital gain (growth in the value of the company and therefore shares).

Question 2

What is share capital?

Accepted Answer

This relates to the money raised by the issue of shares. The share capital is contributed by investors in the company and is represented by shares that are issued to such investors.

Question 3

What are the incentives for investing?

Accepted Answer

Receipt of income (by way of dividend) and a capital gain (growth in the value of the company and therefore the individual's share).

Question 4

What does nominal or par value mean?

Accepted Answer

Nominal or par value is the minimum subscription price for that share.

Question 5

Is it a requirement that shares in a limited company have a nominal or par value?

Accepted Answer

Yes, the shares must have a fixed nominal value. Any allotment of share that does not have a fixed nominal value is void.

Question 6

Can a share be allotted/issued by a company at a discount to its nominal value?

Accepted Answer

No, this is not allowed

Question 7

What does it mean if a share is issued at a premium?

Accepted Answer

A share may be allotted for more than its nominal value, and the excess over nominal value is known as the "premium".

Question 8

What does issued shares mean?

Accepted Answer

This is the amount of shares in issue at any time. A company's ISC is made up of subscriber shares and further shares issued after the company has been incorporated.

Question 9

What does allotted shares mean?

Accepted Answer

Shares are said to be allotted when the person acquires the unconditional right to be included in the company's ROM. Shares are only issued and form part of a company's issued share capital when the shareholder has actually been registered as such in the ROM.

Question 10

When is full legal title to shares achieved?

Accepted Answer

The full legal title to shares is only achieved once a person's name is entered into the ROM.

Question 11

What does called-up/paid-up shares mean?

Accepted Answer

It is not necessary for the shareholder to pay the full amount due on their shares immediately. The amount of nominal capital paid is known as the `paid-up share capital'. The amount outstanding can be demanded at any time and once demanded the payment has been `called'. The definition of `called-up share capital' is the aggregate amount of the calls made on a company's shares and the existing paid-up share capital.

Question 12

What are treasury shares?

Accepted Answer

These are shares that have been brought back by the company itself and are held in 'treasury'. Treasury shares are issued shares being held by the company in its own name, and the company can subsequently sell those shares out of treasury. Pre-emption and disapplication of pre-emption rights apply to treasury shares. The company can choose to cancel treasury shares at any time or transfer them to an employee share scheme.

Question 13

What are ordinary shares?

Accepted Answer

They are the most common form of share and are the default position. They carry a right to vote in GM's, a right to a dividend if one is declared and a right to a portion of any surplus assets of the company on a winding-up. The entitlement of ordinary shareholders to a dividend is unrestricted.

Question 14

What are preference shares?

Accepted Answer

A preference share may give the holder a preference as to payment of a dividend or to return of capital on winding up of the company, or both. This means the payment will rank as higher priority than any equivalent payment to ordinary shareholders. Preference are normally non-voting but it is important to check the Articles.

Question 15

How is the amount of a preferred dividend usually expressed?

Accepted Answer

The amount of preferred dividend is usually expressed as a percentage of the par value of the share e.g. 5% £1 preference shares. If preference shares have been issued at a premium to their par value and it is intended that a fixed dividend will be paid based on the amount subscribed, the share rights must expressly state the dividend is to be calculated as a percentage of the total subscription price.

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