Equity Finance Flashcards
(27 cards)
What is the meaning of nominal par value vs. Premium?
Any share allotment without a fixed nominal value is void.
Nominal value represents a unit of ownership, rather than the value of a share.
Common nominal values - 1p, 5p or £1
Premium - the excess over nominal value for which a share is issued.
Definition of issued share capital:
The amount of shares in issue at any one time. Shown in the company’s balance sheet in its accounts.
What are allotted shares?
Shares are said to be allotted when a person acquires the unconditional right to be included in the company’s register of members with respect to those shares.
Definition of paid-up share capital:
The amount of capital paid on shares. It is not necessary for shareholders to pay the full amount due on their shares immediately.
Ordinary shares:
Most common form of share and the default position. They carry a right to vote in GMs, a right to a dividend if one is declared (after preference shareholders), a right to a portion of any surplus assets of the company on a winding-up.
Preference shares:
Give the holder a preference as to payment of a dividend or to a return of capital on a winding-up of the company (or both).
Preferred shares and dividends:
The amount of preferred dividend is usually expressed as a % of the nominal value of the share e.g. 5% £1 preference shares.
= 5p per share by way of dividend
Cumulative preference shares:
It is presumed that a preference share is cumulative unless otherwise stated.
If a dividend is not declared for a particular year, the right to the preferred amount on the share is carried forward.
What are participating preference shares?
Give the right to:
Participate in surplus profits and/or surplus assets.
What are deferred shares?
These carry no voting rights/no ordinary dividend but are sometimes entitled to a share of surplus profits after other dividends have been paid.
Redeemable shares:
Shares issued with the intention that the company will/may wish to buy them back/cancel them.
Convertible shares:
Carry the option to convert into a different class of share.
Procedure for declaring final dividends:
Recommended by the directors and declared by the company by an OR of the shareholders following the financial year.
Procedure for declaring interim dividends:
Paid where company has sufficient distributable profits.
Interim dividends can be paid without the need for an OR.
Company has realised an investment.
Allotment of shares vs. transfer of shares vs. transmission of shares:
Allotment - issue of new shares.
Transfer - sale of existing shares.
Transmission - automatic process on death/bankruptcy. Death - PRs. Bankruptcy - trustee in bankruptcy.
What is the process for transfer of shares?
Transferor completes STF + sends share certificate to the transferee.
Transferee pays stamp duty.
Directors pass BR.
Transfer must be registered and new share certificate sent to the member within 2 months.
What is the process for transfer of shares?
Transferor completes STF + sends share certificate to the transferee.
Transferee pays stamp duty.
Directors pass BR.
Transfer must be registered and new share certificate sent to the member within 2 months.
Companies under CA 1985 vs. Companies under CA 2006 - cap on shares:
Companies under CA 1985 - authorised share capital;
No cap under CA 2006.
Allotment of shares - when do the company’s directors need authority to allot?
Private companies, one class of share - directors have automatic authority.
All other companies - authority must be granted by OR.
When must pre-emotion rights be dis-applied on allotment?
Any new ordinary shares (shares with no caps on dividends/capital payments/no caps on capital payments) must be offered pro rata to existing shareholders before any new investor.
Shareholders must be given 14 days to accept.
How do you display pre-emption rights?
Companies may disapply pre-emption rights by passing a SR via GM or WR.
Summary of procedure for allotment of shares:
- Any cap on the no. of shares that may be issued?
- Do the company’s directors need authority to allot?
- Must pre-emption rights be disapplied on allotment?
- Must new class rights be created for the shares?
- Directors must pass a BR to allot the new shares.
When is financial assistance prohibited?
When the target is a public company, or when the target is a private company but there is a public company subsidiary.
Procedure for buyback of shares out of profits/proceeds of a fresh issue:
Check the purchase of shares is not restricted/prohibited in the company’s Articles.
That the shares being purchased by the company are fully paid up.
Contract to purchase own shares.
Terms of contract must be approved by OR.
