9.2 Equity or ordinary shares Flashcards
What is meant by “authorised share capital”?
The maximum amount of share capital that a company may issues as detialed in the memorandum of association.
What is “nominal share value”?
The book or face value of each share (e.g. 1p)
What is the “market price” of shares?
The price at which shares are sold.
What are the advantages of equity shares?
- shareholders are paid the residual funds (as dividends) and leftover funds in the event of liquidation
- shares can be easily traded in the stock market
- issuing shares can promote the company in a positive light
What are the disadvantage of equity shares?
- Shareholders can use their voting right to control the company
- additional share issues will dilute voting rights and dividend values
What is the most difficult aspect of issuing shares for a company?
Setting the price correctly (not too high or low)
- too high and there will be little interest
How does a rights issue bypass the issue of setting the price of shares?
Rights issues to existing shareholders are usually offered at an attractive price.
What is a “public issue” of shares?
Shares are offered to the general public by inviting them to apply at a fixed price, as set out in a prospectus.
What is a “placing” of shares?
Shares are offered directly to third party investors
What is a “rights issue” of shares?
Existing shareholders are offered shares in proportion to their existing holding.
What is a “bonus share” or “Scrip issue” of shares?
Additional free shares given to the current shareholders based on their existing number of shares.
