8 Companies: Finance

Question 1

What are the two main sources of finance for a company?

Answer 1

Share Capital
Loan Capital

Question 2

What is a person who invests in shares of the company?

Answer 2

An owner - when you buy shares you’re buying an interest in the company which gives you rights and obligations.

Question 3

What is a person who invests in debentures?

Answer 3

A creditor of the company - they receive interest and can sue if not received.

Question 4

What are the rights of a shareholder?

Answer 4

• Vote
• Attend meetings etc

Question 5

What are a shareholders obligations to the company?

Answer 5

Mostly their liability to the company which is the value of their unpaid share capital.

Question 6

What is a debenture?

Answer 6

A document stating that the company owes someone money which will detail the amount, terms and security etc.

Question 7

What voting rights does the owner of a debenture have?

Answer 7

None

Question 8

Does a shareholder have voting rights?

Answer 8

Yes, number of votes is determined by the amount of and class of shares they hold.

Question 9

What rights does a debenture holder have re income?

Answer 9

They get a fixed amount of interest. If the company doesn’t pay them the interest, the holder can sue.

Question 10

What right to income does a shareholder have from a company?

Answer 10

No rights but dividends can be voted at the directors discretion.

Question 11

Re debentures and shareholders, who has priority in liquidation?

Answer 11

Debentures have priority and shareholders will receive anythjng left over after paying all its creditors.

Question 12

What are the different classes of shares?

Answer 12

Ordinary shares
Preference shares

Question 13

What is an ordinary share?

Answer 13

• Default share type
• Last to be paid on liquidation
• No fixed dividend
• Full voting rights

Question 14

What is a preference share?

Answer 14

• Fixed and cumulative dividends; holder will receive a fixed dividend while profit making but if they start making losses, they will receive two lots of dividends when profit making again
• No voting rights - will only get rights if their dividend hasn’t been paid for a year

Question 15

What is ‘Issued Share Capital’?

Answer 15

Value of shares sold by the company

Question 16

What is ‘Paid up Capital’?

Answer 16

Amount of the capital paid by the members

Question 17

What is ‘Unpaid Capital’?

Answer 17

Proportion of share capital still outstanding

Question 18

What is ‘Called up share capital’?

Answer 18

Proportion of unpaid capital requested to be paid.

Question 19

What are the 3 special ways of issuing shares?

Answer 19

• Bonus issue
• Rights issue
• Through pre-emption rights

Question 20

What is pre-emption rights?

Answer 20

• When new shares are sold, you have the right to be offered before anyone else.

Question 21

What are the two types of pre-emption rights?

Answer 21

• Statutory: new shares offered in proportion to their current holding. Get 21 days to get them.
• Other pre-emption rights: give members pre-emption rights through articles of association.

Question 22

What are bonus issue shares?

Answer 22

• Company gives existing members shares for free in proportion to their existing share holding e.g. 1:2.
• Funded from share premium account.

Question 23

What are right issue shares?

Answer 23

• Give members opportunity to buy more shares in proportion to their existing holding e.g. 1:2.
• Usually sold for less than market value but can never sell a share below nominal value.

Question 24

What are redeemable shares?

Answer 24

• Shares which under their terms of issue can be bought back by the company at a certain time.