w3 Flashcards
What’s limited liability?
When the company is a separate legal entity from shareholders, directors and managers..
Name 2 Legal Effect of Articles of Association
- Articles bind the company and the shareholder(s)
- Articles bind the shareholders to each other
- ONLY IN CAPACITY AS SHAREHOLDERS
What’s share capital?
“the interest of a shareholder in the company measured by a sum of money, for the purpose of a liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders.
In simple terms, a bundle of rights.
Name 2 rights you’d get with ordinary shares
- Full voting rights
- No fixed dividends and paid after preference share dividends
- Entitled to surplus assets after the repayment of preference shares
Name 2 rights you’d get with purchasing preference shares
- No voting rights
- Fixed dividends paid in priority to others - cumulative
- Entitled to repayment of initial capital, but cannot participate in surplus
How do the Articles of Association work?
They work in regards to shareholder rights.
What’re class right?
The different types of classes shares can be as oopposed to ordinary and preference.
Eg, Class A/B/C.
Eg Management Shares or Deadlock Articles
What’s a management share?
A share class with extra voting rights to retain company control in particular hands
(Facebook, 1 share = one vote)
Can class rights be varied?
Yes, dependent on the matter being in the Article.
If it’s in the Article:
Contained - Action reuqired to vary class rights
Yes? - Follow article procedure
No? - Variation requires a special resolution
What does Companies Act 2006 cover about Class Rights and changes to share class rights?
Protection to minority shareholders who feel unfairly prejudiced by a change in share class rights.
- If holders of ≥ 15% of the shares in that class object to the variation
- They may ask a court, within 21 days of the resolution, to cancel the variation on the grounds that it is unfairly prejudicial.
What’s 2 important principles for the Companies Act 2006 on class rights?
VARIATION
- Courts only cancel variation if rights themselves change.
- Courts won’t intervene if variation only affects value, enjoyment or power derived from rights.
Why may companies issue shares?
To raise capital.
What happens to existing shareholders when there’s a new share issue?
Reduces their proportionate stake.
What’s a partly paid share?
This is where the shareholder does not pay the full amount of nominal value for the shares immediately.
This is permitted by the Companies Act 2006, and the outstanding (“unpaid”) element is the shareholder’s liability in the event of winding up.
What is selling shares at a premium?
This means selling the shares for a price which is HIGHER than their nominal value – the premium is the price paid above the nominal value. (eg market value).
What one thing that share premium be used for?
- Writing off expenses of the issue of new shares
- Writing off any commission paid on the issue of new shares
- Issuing bonus shares
Is selling shares at a discount legal?
It’s forbidden to sell shares below nominal value.
