2): Financing a Business Flashcards
(36 cards)
What rights generally attach to shares under the Companies Act 2006?
4 main rights
▸ Right to dividend (if declared and profits exist)
▸ Right to vote at general meetings
▸ Right to share in surplus assets on winding up
▸ Statutory rights
What is the difference between nominal and true value of shares?
3 points
Nominal/par value: fixed baseline value.
True value: fluctuates depending on company success.
Shares can be issued above nominal value.
How are new issued/allotted shares paid for?
3 parts
- Can be paid fully or partly on allotment.
- If partly paid, company can call for unpaid balance.
- Shares issued at a premium form part of the company’s capital.
What is the consequence of partly paid shares in liquidation?
simple
Shareholder is obliged to pay the unpaid amount to the company.
What legal rules must be satisfied to make a valid distribution?
3 rules - The Accountant FFS
- Must have profits available (distributable
profits/reserves). - Must be justified by relevant accounts (individual accounts, not group).
- Must be based on the most recent annual accounts.
Initial Checks Before Share Allotment (Private Cos post-2009)?
3 steps - very very broad
▸ Check Articles – no restrictions?
▸ If restricted → amend by SR + file at CH within 15 days
[Allotment] What is the authority required for directors to allot shares where there is only one class of share (Private Companies)?
4 steps, authority important
▸ No shareholder approval needed (if unrestricted)
▸ Board Resolution is enough
▸ If restricted → amend Articles (SR) or pass OR (s.551)
▸ File OR at CH within 15 days
[Allotment] What is required if a company has more than one class of share (Private/PLCs)?
4 steps, 3rd steps is 3 parts
▸ Authority via SR or Articles
▸ OR must state: number of shares, expiry (max 5 years), conditions
▸ File OR at CH within 15 days
[Pre-emption Rights] What are statutory pre-emption rights?
3 rules + 2 additional points
- Equity securities must be offered to existing members in proportion to their holdings.
- Offer must be made on same or better terms.
- Members must have 14 days minimum “right of first refusal.”
Dont apply for:
- Non-cash issues
- If Articles or SR have disapplied the rights.
[Pre-emption Rights] What must be filed post-allotment?
3 forms
- Form SH01 within 1 month (return of allotment).
- Amend register of members within 2 months.
- Issue new share certificates within 2 months.
[Dividends] What must the company check before declaring dividends?
2 steps
- Ensure profits are available (accumulated realised profits – accumulated realised losses).
- Check Articles for any special procedures.
[Dividends] What is the directors’ role in dividend payments?
2 considerations to make
- Must decide whether to declare a dividend under Model Articles.
- Make a recommendation to the general meeting
[Dividends] What is the role of members in dividend payments?
2 roles
- Must pass OR to approve payment.
- Cannot pay themselves more than recommended amount
[Share Buyback – General Principles] What is a share buyback and when is it permitted?
3 parts
- when a company repurchases its own shares.
- generally prohibited under capital maintenance rules.
- Allowed only if the statutory procedure is correctly followed.
[Share Buyback – General Principles] Why must capital be maintained during a buyback?
2 reasons
- Paid-up share capital must be preserved to protect creditors.
- It cannot be returned to shareholders without statutory compliance.
[Share Buyback – General Principles] What sources can a company use to fund a share buyback?
3 sources
- Distributable profits.
- A fresh issue of shares.
- Capital, but only if no distributable profits are available + specific conditions are met.
[Share Buyback – Procedure] What occurs at the Board Meetings (BM)?
4 main parts
✅ Pre-checks:
-Shares fully paid
-Articles allow it
-Accounts ≤ 3 months old
▸ BM1: Approve contract, Solvency Statement (SOS), call GM or WR
▸ Members: OR for contract, SR for capital payment (seller can’t vote)
▸ BM2: Sign contract, pay within 5–7 weeks
[Share Buyback – Procedure] What filings and record-keeping are required?
3 steps, 2nd step has 2 parts
- Minutes and resolutions must be retained for 10 years.
- File with Companies House within 28 days:
- SH03
- SH06 - Update register of members and cancel shares.
[Transfer of Shares] What is the procedure for transferring shares?
6 steps, last step 3 parts
▸ Complete & sign STF → pay stamp duty if due
▸ Send to company → Board approves
▸ If approved: update register, issue cert (2 months), update CS01
[Transmission of Shares] What is share transmission and when does it occur?
5 points
⚙️ Occurs by operation of law (not contract)
🪦 On death → shares pass to personal representatives
💸 On bankruptcy → shares pass to trustee in bankruptcy
📃 No contract involved (unlike a transfer)
✅ Person becomes shareholder once register is updated
(On death/bankruptcy of shareholder) What are the rights and options of the personal representative or trustee in bankruptcy?
4 main points
🚫 Do not automatically become members
📝 Can apply to register or transfer shares (check Articles)
💷 Entitled to dividends declared before registration
🗳️ No voting rights until registered as members
(Transmission of shares) What must the company do when shares are transmitted due to death or bankruptcy?
3 parts, 5 total
▸ BR to approve/reject
▸ Register transfer, issue new cert
▸ Update CS01 + member register
What is debt finance and how can it be secured?
3 points
💰 Means borrowing money (e.g. bank loan)
🏦 Can be secured (on assets) or unsecured
📜 Articles may restrict borrowing – need SR to amend
What are the main ways for a company to obtain debt finance?
3 main ones
🔸 Overdraft: flexible, on-demand, high interest
🔸 Term Loan: fixed period, regular payments, can be secured
🔸 RCF: borrow/repay/borrow again – working capital
