Company Shares Flashcards
(85 cards)
What is the ‘nominal value’ of a share?
the value of the share at the point it was originally issued (also called fixed par value or face value)
What is a ‘share premium’?
any value above the nominal value. The share will be considered to be ‘issued at premium’.
How is the share premium calculated?
The premium is calculated by finding the difference between the share issue price and the par value of shares offered for sale
What is share capital?
Share capital is the money provided by SHs in return for shares
What is the purpose of the doctrine of share capital?
to protect creditors as SHs have LL
What is the doctrine of share capital?
A rule that a company cannot return capital to its SHs unless one of the statutory exceptions applies, i.e.:
o A company buys back its own shares (following statutory procedure)
o A company buys back its shared under a court order to buy out an unfairly prejudiced minority SH
o In winding up once creditors have been paid
What will the articles of association set out in relation to shares?
The AA will set out the exact rights for SHs attached to each type/class of share
What are the main types of share?
o Ordinary shares
o Preference shares
What rights are usually attached to ordinary shares?
o Each share has an equal entitlement to dividends that are declared
o Each share has a voting right
How are preference shares different to ordinary shares?
PS carry rights that take preference over OS
How can ordinary shares be divided? Why is this done?
There can be different classes of ordinary shares and each class can have different rights, i.e. Ordinary A Shares and Ordinary B Shares
Classes of shares are commonly used enable a different amount of dividends for each class of share
What rights are usually attached to preference shares? What does this mean in effect?
Usually, PS carry a right to receive a fixed dividend and have no/limited voting rights
Therefore, if the company has made a profit, the PS holder has a right to receive dividends before OS holders. The dividend they receive will be a fixed sum that reflects a % of their capital contribution
What is the most attractive type of share to an investor and why?
Preference shares to investors who simply want money and don’t want to be involved in the decisions of the company
How is the dividend payable on preference shares often expressed? Give an example.
The dividend payable on preference shares is often expressed as a % of the nominal value of the preference shares. This is fixed unless the AAs state otherwise.
i.e. ‘5% preference shares’ then the SH will receive a fixed dividend of 5p for each £1 preference share they own.
What is the effect of a dividend payable on a preference share being a fixed %? Give an example.
if the company does well, they will still only receive a fixed sum
o Mr Smith invests £100,000
o In return, Mr Smith receives 5% preference shares
o If the company makes profit, Mr Smith will receive 5% of their initial investment by way of dividend i.e. £5,000.
o Other SHs will only receive a dividend if there are any profits remaining
What is the presumption if the preference share carries a right to a fixed dividend? What does this mean?
There is a presumption that the dividend is cumulative (unless otherwise stated in the AA).
This means that if the PS holder is not paid in one financial year, the dividends owed must be paid in subsequent years before OS holders are paid.
What is a non-cumulative preference share?
The PS holder is only entitled to profits from each year i.e. if the company does not make a profit that year, then the PS holder will lose the right to those profits. They will not carry over into the next year.
What is a participating preference share?
This is when the PS holder has a right to a fixed dividend and a right to further profits made by the company
When is the allotment of shares process used?
This is when a company will create new shares and receive consideration for them. This is a way to raise funds for the company.
How do participating preference shares work?
Participating PS holders receive their fixed dividend
The AAs set out a specific amount of dividends the OS holders receive per share
Once the OS holders have received the prescribed amount, the participating PS holders then receive a further % of the profits
When allotting shares, when does a special resolution need to be passed? Why?
If the company is issuing a new type of shares i.e. they already had ordinary and they now want to issue preference for the first time.
This is because the articles would need to be amended to include the new type of SHs’ rights
What is the effect on existing shareholders when shares are allotted?
the % of shares held by existing SHs decreases.
What are the three key questions when dealing with allotment?
o Are there any constitutional restrictions on allotment?
o Do the directors have authority to allot shares?
o Are there any pre-emption rights?
re: allotment of shares
what is the position on constitutional rights in relation to companies incorporated after 1 October 2009?
o Check the company’s articles for a limit on the number of shares
o If they have the MAs, there will be no limit on the number of shares
o If there is a limit, the articles need to be changed by SR
