Shares and share capital Flashcards
Explain the distinction between a share’s nominal value and the share premium.
Section 542(1) of the CA 2006 provides that shares in a limited company must each have a fixed nominal value attached to them. Shares are often allotted for more than their nominal value, and the excess is known as the share premium.
Explain the distinction between a company’s allotted share capital and its issued share capital.
The total nominal value of shares that have actually been allotted is known as the allotted share capital. Once shares have been allotted to a person and that person’s name has been entered into the register of members in respect of those shares, those shares have been issued (National Westminster Bank plc v Inland Revenue Commissioners [1995] 1 AC
119 (HL)). The total nominal value of shares that have been issued is called the issued share capital (s. 546(1)(a)).
Explain the distinction between a company’s paid-up share capital and its called-up share capital.
A company’s paid-up share capital represents the combined total of the nominal value of shares that has actually been
paid. A company’s called-up share capital represents the paid-up share capital plus the amount called for/instalment
amount due (irrespective of whether this payment is actually made).
What is the difference between allotting and issuing shares?
The distinction between when shares are allotted and when they are issued is:
- shares are allotted ‘when a person acquires the unconditional right to be included in the company’s register of members in respect of the shares’ (CA 2006, s. 558); and
- shares are issued when the person’s name is actually entered into the register of members (National Westminster Bank v Inland Revenue Commissioners [1995] 1 AC 119 (HL)).
A private company that has allotted ordinary shares wishes to allot preference shares. Do the directors have the authority to allot these shares?
Where a private company that has allotted ordinary shares wishes to allot preference shares, then the directors will only
have the authority to allot shares on behalf of the company if they are authorised to do so by the company’s articles or by
a resolution of the company (s. 551(1)).
Explain the concept of a minimum share capital
A public company must not conduct any business until it has been issued with a trading certificate (CA 2006, s. 761(1)).
The Registrar should not issue a public company with a trading certificate unless the nominal value of the company’s allotted share capital is not less than the authorised minimum (s. 761(2)). This authorised minimum is £50,000 or the
prescribed euro equivalent (s. 763(1)).
What are pre-emption rights?
Where pre-emption rights apply, the company cannot allot equity securities unless it has first offered them to existing shareholders in a manner that allows them to maintain their existing shareholding.
Explain the distinction between fully paid, partly-paid and nil-paid shares.
A company can allot shares that are:
- fully paid (i.e. the full purchase price is payable on allotment);
- partly paid (i.e. part of the purchase price is due on allotment, with the remainder at a later date); or
- nil paid (nothing is due on allotment, with the full price to be paid at some point in the future).
What limitations are placed upon a public company’s ability to accept non-cash consideration as payment for shares?
A public company’s ability to accept non-cash consideration as payment for shares is limited in several ways:
- A public company must not accept, in payment for its shares or any premium on them, an undertaking from a person that he or someone else will do work or perform services for the company (s. 585(1)).
- A public company cannot accept as payment an undertaking which is to be performed more than five years after the date of the allotment (s. 587(2)).
- A public company cannot generally accept non-cash consideration as payment for shares, unless the non-cash
consideration has been independently valued and a copy of the valuation report made available to the company and the proposed allottee (s. 593(1)).
What two functions does a share certificate fulfil?
A share certificate fulfils two functions. First, it provides basic information about the shares to which it relates (what information is contained in a share certificate is a matter for the company’s articles). Second, the share certificate
provides evidence that the person named on it holds legal title to the shares related to the certificate.
What three sets of rules within the FCA Handbook are relevant to the public offering of shares?
The key rules within the FCA Handbook relating to a public offering of shares are:
- the Listing Rules, which set out the rules for listing shares and the rules that listed companies must comply with;
- the Prospectus Regulation Rules, which set out rules regarding the preparation and publication of prospectuses;
and - the Disclosure Guidance and Transparency Rules, which impose a range of disclosure obligations on listed
companies.
Identify the four main types of public offering of shares.
There are four main types of public offer.
- An offer for subscription involves the company offering to the public a certain amount of shares.
- An offer for sale involves an investment bank subscribing for all the shares being offered by the company, and the bank then offering those shares to the public.
- A placing usually involves an investment bank ‘placing’ its shares with selected purchasers (normally institutional investors selected by the bank), rather than the public at large. The bank is essentially identifying which persons may wish to purchase the shares. Once the placing is made, those persons can then decide whether to purchase
the shares or not. - A rights issue is an offer made to existing shareholders of the company, under which each shareholder is offered
shares in proportion to their existing shareholding. It is often the case that 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, it is known as an ‘open offer’).
Explain the distinction between a standard listing and a premium listing.
Companies with a standard listing are required to comply with certain base obligations. Companies with a premium listing are subject to greater regulation and the UK Corporate Governance Code applies to companies with a premium listing.
When will a company be required to prepare and publish a prospectus?
Section 85(1) and (2) of FSMA 2000 provides that it is unlawful for transferable securities to be offered to the public, or request that shares be admitted to trading on a UK regulated market, unless an approved prospectus has been made available before the offer/request is made. However, the government plans to completely replace the current UK prospectus regime. As regards, an admission for securities to trading on a regulated market, the FCA will set out when a
prospectus will be required. As regards an offer of shares to the public, a prospectus will not generally be required.
If a company decides to divide a prospectus up into separate documents, what are these documents? Briefly explain
what they cover.
If a prospectus is drawn up as separate documents, then three separate documents are required:
- the registration document, which contains information about the company issuing the shares in question;
- the securities note, which contains information about the shares to which the prospectus relates; and
- the summary, which must provide the key information that investors need in order to understand the nature and the risks of the issuer, the securities that are being offer/admitted to trading and, when read together with others parts of the prospectus, will aid investors when considering whether to invest (Art 7 of the UK Prospectus Regulation,
reproduced in PRR 2.1.1).
