Week 4

Question 1

Ordinary Shares

Answer 1

Nominal Value
Paper Based - Voting Rights
Crest / Electronic - No voting rights

Question 2

Bonus Shares

Answer 2

same as ordinary but issued as loyalty to employees / shareholders.
Company pays for them
No pre-emption condition

Question 3

Preference Shares

Answer 3

Medium term equity financing
Rights include a garunteed dividend.
May be voting or non voting
Designed to be redeemed.

Question 4

Who can buy shares

Answer 4

PRivate limited - shareholders, connected persons and creditors of company.

PLC - Anyone

Question 5

Rights issue

Answer 5

Raise capital in exchange for assets, or bring someone new into business.

Question 6

Impropper Alotment

Answer 6

Director under duty to act within their powers when alloting shares (manipulation of voting not allowed) Can be annulled by court if unlawful alotment.

Question 7

CA 2006 S.560-577

Answer 7

Director can’t manipulate voting power

Existing shareholders have right to pre emption

Question 8

CA 2006 S.580

Answer 8

No allotment at discount

Alottee liable to pay an amount equal to interest + discount

Question 9

CA 2006 S.581

Answer 9

Part paid shares allowed but can be called up

Dividends paid pro rata.

Question 10

Shares sold at premium

Answer 10

Excess into Share premium account
Not distributable
Can be used for expenses of issuing shares and to fund bonus shares

Question 11

CA 2006 S.610

Answer 11

Share premium account can be used to allot bonus shares.

Question 12

Bonus Shares

Answer 12

Form of loyalty Payment
Paid fully by company
funded from share premium or undistributed profits.
Directors propose decision and approval needed by ordinary resoloution of members.

Question 13

Altering rights of shareholders

Answer 13

Cannot unilaterally alter rights
Can be altered in line with articles or special reosloution.
Minority has 21 days to apply to have variation cancelled, but must satisfy it is Unfair prejudice.

Question 14

Capital Maintence

Answer 14

Protect Creditors
Shareholder last principle in winding up
unfairness if shareholders could recover investment

Question 15

Insolvency Act 1986 S.74

Answer 15

Limited liability garunteed for shareholders

Question 16

Reduction in capital

Answer 16

can make no payment or return of capital to shareholders except for Authorised reduction in capital or payment to divide profits.

Question 17

S.617 and S.641-649

Answer 17

Reduction of capital as authorised in law

Question 18

S.830-831

Answer 18

Distribution to members as dividends (only from profits)

Question 19

Share Buy Back

Answer 19

Purchasing shares out of capital prohibited due to no capital maintence

Question 20

The rule in Trevor v Whitworth

Answer 20

Shareholder agreed to sel shared to company in 2 installments, then sued for 2nd installment.

House of Lords held companies are not allowed to buy back shares.

Question 21

Exceptions to Rule in Trevor v Whitworth

Answer 21

Public companies can purchase their own shares with:
proceeds of new issue of shares
using distributable profits (put sum into capital redemption reserve)
Private companies can purchase own shares out of capital provided statutory process followed.

Question 22

Reasons for reducing capital

Answer 22

Excess capital due to scaling down
INcrease dividend per share
Improve finances of company (get rid of expensive share capital and replace with cheaper debt financing (tax reasons too)
To buy out founding shareholder who no longer participates .

Question 23

Reduction of share capital requirement for PVT LTD

Answer 23

Private Company - special resoloution followed by solvency statement

Question 24

Reduction of share capital requirement for PLC

Answer 24

Court order confirming Special resoloution
Court writes too all creditors who can object
Problematic creditors paid off first.

Question 25

CA 2006 S.641

Answer 25

Not possible to reduce capital if only redeemable shares left.

Question 26

CA 2006 S.829

Answer 26

Distribution means every asset of thing of value as well as cash given to the members of a company. INcluding Dividends, Annual and Interim

Question 27

LEgal right to dividend

Answer 27

None unless preference share

Question 28

CA 2006 S.830 for PVT LTD

Answer 28

Distribution out of profits for purpose

Companies accumulated realised profits less accumulates realised losses (PVT LTD)

Question 29

CA 2006 S,831 for PLC

Answer 29

Net asset restriction on distributions to public companies which must write off unrealised losses as well as realised losses from realised profit. More stringent due to higher impact.

Question 30

Undisributable reserves

Answer 30

Share premium account, Capital redemption reseve

Question 31

CA 2006 S.847

Answer 31

Those receiving unlawful distributions must repay it

Question 32

Its a wrap v Gula

Answer 32

Director paying himself as dividends for tax reasons, these were unlawful, so he had to pay back.

Question 33

Banking Flintcrofts case

Answer 33

Directors made unlawful distrbutions which weren’t recoverable, director liable to compnay, so they must pay themselves.

Question 34

Approving dividends

Answer 34

Amount available for distribution determined from accounts. Directors propse dividend and annual accounts circulated to members.
Members approve dividend

Question 35

CA 2006 S.393

Answer 35

When making dividend proposal, account and balance must give a true and fair view.