Shares Flashcards
Why are shares called a “bundle of rights”?
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).
What does nominal or par value mean?
Shares in a limited company having share capital must have a fixed nominal value. Any allotment that does not have a fixed value is void. The nominal or par value of a share is the minimum subscription price for that share.
It represents a unit of ownership rather than the actual value.
A share may not be allotted/issued by a company at a discount to its nominal value.
What does it mean if a share is issued at a premium?
A share may be allotted for more than its nominal value, and the excess over nominal value is known as the “premium”.
What does issued shares mean?
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.
What does allotted shares mean?
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.
The full legal title to shares is only achieved once a person’s name is entered into the ROM.
What does called-up/paid-up shares mean?
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.
What are treasury shares?
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.
What are ordinary shares?
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.
What are preference shares?
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.
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.
Preference are normally non-voting but it is important to check the Articles.
What are cumulative preference shares?
It is presumed a preference share is cumulative unless otherwise stated. This means if a dividend is not declared for a particular year, the right to the preferred amount on the share is carried forward and will be paid together with any other dividends due, when there are available profits.
What are participating preference shares?
Participating preference shareholders may participate together with the holders of ordinary shares:
- in surplus profits available for distribution after they have received their own fixed preferred dividend; and/or
- in surplus assets of the company on a winding up.
What are deferred shares?
These carry no voting rights and no ordinary dividend but are sometimes entitled to a share of surplus profits after other dividends have been paid.
Usually, deferred shares carry no rights at all and are used in specific circumstances where `worthless’ shares are required.
What are redeemable shares?
Shares which are issued with the intention that the company will, or may wish to, at some time in the future, buy them back and cancel them.
What are convertible shares?
Such shares will usually carry an option to convert into a different class of share according to stipulated criteria.
What is distributable profits?
The company’s accumulated realised profits less its accumulated realised losses.
