Company finances

Question 1

What is a dividend and what kinds are there?

Answer 1

Distribution of profits to shareholders together with buyback. 2 kinds, interim during the financial year and final at the end of it, SH must pass an OR to agree the level of the final dividend (BR makes recommendation, SH approve or vary)

Question 2

How does a transfer of shares take place under MAs?

Answer 2

If sale between one SH and another then a BR needed to approve, update register and issue share certificate. No MA then may not need approval.

Question 3

Buyback of shares from capital - when and how?

Answer 3

Only in exception circs as against docterine of maintainece. Solvency statement, auditor report, SR, OR, notices in gazette, local papers, filling and CH admin

Question 4

How can an LTd raise money?

Answer 4

Loan
Bonds
Security
Issue new shares to create share capital

Question 5

What are the requirements to issue new shares?

Answer 5

Check AoA. MA plus only 1 class of shares then BR only but pre-emption rights may need to be disapplied via SR.
Post BR - need a statement of capital, SR (and OR), update PSC if applicable, keep minutes, issue new share certs and update member register

Question 6

What are pre-emption rights?

Answer 6

Pre-emption rights, also known as “first refusal rights” or “right of first refusal,” are contractual provisions that give existing shareholders the opportunity to purchase additional shares before the company offers them to external parties. This ensures that current shareholders have the chance to maintain their proportional ownership in the company, thereby safeguarding their level of control and influence.

Question 7

What is a bond?

Answer 7

Debt security issued by investors to companies, Investors get interest until amount repaid in full and can trade the bonds

Question 8

Types of loans, pros and cons

Answer 8

Fixed term - Usually 7 years, usually for a specific purpose, fixed payments over term. Greater certainty but expensive and may need asset to secure
Overdraft- agreement by bank to allow company to go overdrawn, high interest and can be withdrawn at any time usually has a fee
Revolving credit facility - Bank commits to having pot available for time period that company can dip in and out of. Flexible but fees and interest can be high

Question 9

What is security in debt financing?

Answer 9

Fixed charge - over a specific asset(s), allows lender to appoint a receiver if borrower defaults and takes priority over floating charge
Guarantee- Contractual right against borrower or third party
FLoating charge - Against class of assets, borrower can use asset as it wishes until default then it crystalizes lower priority then fixed charge
Mortgage - Strongest form of security
MA has no restrictions on company taking security
All securities must be registered at companies house within 21 days to be valid. Securities are prioritised by class and then by date of creation.

Question 10

Which processes require an SR?

Answer 10

Changing the company name –
Amending the articles of association –
Reducing the share capital – Want to decrease the total number of company shares
Purchasing the company’s own shares from capital
**Changing the company’s legal structure **– For example, switching from a private limited company to a public limited company (PLC).
Winding up or entering insolvency proceedings –
Authorising the allotment of shares (where not permitted by articles) – In some cases, issuing new shares may trigger a need for a special resolution, especially if not already authorised.