Week 4 Flashcards
1. Capital Maintenence and Division of Profit 2. Share Buy Back 3. Issuing new shares and rights to pre-emption 4. Alteration of shareholder Rights
Ordinary Shares
Nominal Value
Paper Based - Voting Rights
Crest / Electronic - No voting rights
Bonus Shares
same as ordinary but issued as loyalty to employees / shareholders.
Company pays for them
No pre-emption condition
Preference Shares
Medium term equity financing
Rights include a garunteed dividend.
May be voting or non voting
Designed to be redeemed.
Who can buy shares
PRivate limited - shareholders, connected persons and creditors of company.
PLC - Anyone
Rights issue
Raise capital in exchange for assets, or bring someone new into business.
Impropper Alotment
Director under duty to act within their powers when alloting shares (manipulation of voting not allowed) Can be annulled by court if unlawful alotment.
CA 2006 S.560-577
Director can’t manipulate voting power
Existing shareholders have right to pre emption
CA 2006 S.580
No allotment at discount
Alottee liable to pay an amount equal to interest + discount
CA 2006 S.581
Part paid shares allowed but can be called up
Dividends paid pro rata.
Shares sold at premium
Excess into Share premium account
Not distributable
Can be used for expenses of issuing shares and to fund bonus shares
CA 2006 S.610
Share premium account can be used to allot bonus shares.
Bonus Shares
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.
Altering rights of shareholders
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.
Capital Maintence
Protect Creditors
Shareholder last principle in winding up
unfairness if shareholders could recover investment
Insolvency Act 1986 S.74
Limited liability garunteed for shareholders
Reduction in capital
can make no payment or return of capital to shareholders except for Authorised reduction in capital or payment to divide profits.
S.617 and S.641-649
Reduction of capital as authorised in law
S.830-831
Distribution to members as dividends (only from profits)
Share Buy Back
Purchasing shares out of capital prohibited due to no capital maintence
The rule in Trevor v Whitworth
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.
Exceptions to Rule in Trevor v Whitworth
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.
Reasons for reducing capital
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 .
Reduction of share capital requirement for PVT LTD
Private Company - special resoloution followed by solvency statement
Reduction of share capital requirement for PLC
Court order confirming Special resoloution
Court writes too all creditors who can object
Problematic creditors paid off first.
CA 2006 S.641
Not possible to reduce capital if only redeemable shares left.
CA 2006 S.829
Distribution means every asset of thing of value as well as cash given to the members of a company. INcluding Dividends, Annual and Interim
LEgal right to dividend
None unless preference share
CA 2006 S.830 for PVT LTD
Distribution out of profits for purpose
Companies accumulated realised profits less accumulates realised losses (PVT LTD)
CA 2006 S,831 for PLC
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.
Undisributable reserves
Share premium account, Capital redemption reseve
CA 2006 S.847
Those receiving unlawful distributions must repay it
Its a wrap v Gula
Director paying himself as dividends for tax reasons, these were unlawful, so he had to pay back.
Banking Flintcrofts case
Directors made unlawful distrbutions which weren’t recoverable, director liable to compnay, so they must pay themselves.
Approving dividends
Amount available for distribution determined from accounts. Directors propse dividend and annual accounts circulated to members.
Members approve dividend
CA 2006 S.393
When making dividend proposal, account and balance must give a true and fair view.
