Company Law 6: Financing

Question 1

What is Initial Share Capital

Answer 1

What subscribers agree to purchase in memorandum of association (before company is formed)

The value of these first shares = nominal value

After formation directors allot these shares and receive payment

This money = initial share capital and cannot be returned (except liquidation etc.)

Question 2

How can new shares be allotted?

Answer 2

Companies incorporated after 2009
- directors have automatic power to allot new shares; only if
- company only has one class of shares (and not restricted in articles)

Otherwise (pre 2009, has more classes etc.)
- ordinary resolution required by shareholders

Question 3

What can be used as consideration for Shares and when must it be paid?

Answer 3

Can be cash or property

Payment must be made when shares are allotted (unless articles provide otherwise)

Question 4

What does it means for shares to be issued at premium

Answer 4

If price for new allotment of shares is more than nominal value the difference = premium

Premium to be stored in separate account

Question 5

When are preemption rights engaged

Answer 5

When new shares are issued for cash

And if it is not restricted under articles

Does not apply to preference shares

Question 6

How long must shares be offered to existing shareholders (preemption rights)

Answer 6

At least 14 days must be given to accept

Question 7

How can preemption rights be restricted

Answer 7

By special resolution

Articles may restrict them
- Private companies can diss-apply them

Question 8

Can shares be transferred / what would process be

Answer 8

Governed by articles

Private companies (MA) grant directors absolute power to refuse to allow transfer

Process
- seller gives share certificate and stock transfer form to buyer
- buyer sends certificate and transfer form to company
- company to register new member
- board issues new share certificate
- register of members is updated
- NO filing requirement

Question 9

Rules of Fixed Charges

Answer 9

Used for assets company will own for long time

If company breached loan terms, goes into receivership or liquidation charge holder has right to sell asset

Company not allowed to dispose, lease or grant further charges over asset without lenders consent

Question 10

Floating Charge

Answer 10

Taken over group of assets that change regularly

Crystallises over current assets in that class in default

Question 11

Registration of charges

Answer 11

Charges must be registered at CH in 21 days of creation. Inc:
- certified copy of charge and fees
- registered with land register if land

Failure means
- renders charge void against liquidator, administrators and other creditors
- therefore registration often done by lender

Question 12

Priority of creditors for assets with multiple charges

Answer 12

Fixed charge always takes priority over floating if for same asset

Fixed Charges:
- priority by date of creation, provided it is registered

Floating
- priority by date of creation, provided it is registered