Introduction to Shares

Question 1

What is capital?

Answer 1

Funds available to run the business

Question 2

What is share capital?

Answer 2

Money raised by the issue of shares

Question 3

What is working capital?

Answer 3

Funds needed to keep the business going

Question 4

What are different ways to raise finance?

Answer 4

1) Equity finance
2) Debt finance

Question 5

What are the incentives of investing into a company for shares?

Answer 5

1) Receipt of income (dividends)
2) Capital gain of shares

Question 6

What must a share have for its allotment not to be void?

Answer 6

A fixed nominal value

Question 7

What is a fixed nominal value?

Answer 7

The minimum subscription price for that share

Question 8

What is a par value?

Answer 8

Another saying for nominal value

Question 9

Does the nominal value represent the actual value?

Answer 9

No, it just represents the unit of shares

Question 10

What are some common nominal values?

Answer 10

1p, 5p, or £1

Question 11

What is a premium?

Answer 11

When a share is allotted at higher than its nominal value

Question 12

What is an issued share capital?

Answer 12

The amount of shares in issue at any time

Question 13

What are subscriber shares?

Answer 13

The shares purchased by the first members of the company

Question 14

When can new shares be issued?

Answer 14

At any time after incorporation

Question 15

What is allotment?

Answer 15

When a person acquires the unconditional right to be included in company’s register of members in respect of those shares

Question 16

What is the issue of shares?

Answer 16

Once allotted, this will be once they are registered onto the register of members

Question 17

When is full legal title to shares achieved?

Answer 17

Once a person’s name is entered in the company’s register of members

Question 18

What is paid-up share capital?

Answer 18

The amount of nominal that has been paid so far

Question 19

What is called up share capital?

Answer 19

When a company calls for the shares to be paid off by shareholders

Question 20

Can shares be issued even if not paid up in full?

Answer 20

Yes

Question 21

What are treasury shares?

Answer 21

Shares that the company buys back and is just holding on to

Question 22

Can treasury shares be issued?

Answer 22

No, even though they are transferred to the Company

Question 23

What can the company do with treasury shares?

Answer 23

Cancel them, transfer them to employee share scheme, or to someone else

Question 24

What are different classes of shares?

Answer 24

Different shares with different rights

Question 25

Is the definition of different classes of shares in CA 2006? What is the effect?

Answer 25

No, it is not. So the label has no meaning, but the Article is what determines what the shares mean.

Question 26

What are the different types of shares? (8)

Answer 26

1) Ordinary shares 2) Redeemable shares 3) Preference shares 4) Non-voting shares 5) Employees’ shares 6) Cumulative shares 7) Convertible shares 8) Deferred shares

Question 27

What is the default class of shares?

Answer 27

Ordinary shares

Question 28

What happens if shares are issued without differentiation on class?

Answer 28

They will just be ordinary shares

Question 29

What are preference shares?

Answer 29

Payments to preference shareholders will hold priority over ordinary shareholders

Question 30

Can preference shareholders vote?

Answer 30

Typically non-voting, but important to check the Article’s as can be issued with voting rights

Question 31

What happens if a dividend is not paid in a particular year for a preference share?

Answer 31

Unless Article’s state otherwise, this will carry on to the next time they get dividends, and they are eligible for it when its available

Question 32

What are cumulative preference shares?

Answer 32

Default position for preference shares – if a dividend is not paid for a particular year, that right will be carried forward and paid together with other dividends

Question 33

What are participating preference shares?

Answer 33

Holders can participate (with ordinary shareholders) in surplus of profits available after distribution, after their own fixed preferred dividend, and/or surplus of assets on winding up

Question 34

What are deferred shares?

Answer 34

No voting rights and no ordinary dividend – but sometimes entitled to surplus of profits once other dividends paid Basically no rights

Question 35

What are redeemable shares?

Answer 35

Shares issued with intention that company will, buy them back when they want to

Question 36

What are convertible shares?

Answer 36

Shares that carry an option to convert into a different class according to stipulated criteria

Question 37

Are there any formal universal definitions of different types of share?

Answer 37

No, everything is in the Article’s

Question 38

What voting right is needed to vary a class of share?

Answer 38

If no amendments, at least 75%

Question 39

Who can apply to the court to have a variation of a class of share cancelled?

Answer 39

Shareholders holding 15% of the relevant shares

Question 40

How long does a shareholder have to apply to the court regarding a variation of a class of share?

Answer 40

Within 21 days of the resolution

Question 41

When are dividends payable?

Answer 41

If the company has sufficient distributable profits

Question 42

What are the two types of dividends?

Answer 42

1) Final dividends 2) Interim dividends

Question 43

What are final dividends? How are they declared?

Answer 43

Declared by the company by ordinary resolution following financial year end

Question 44

What are interim dividends? Is a resolution needed?

Answer 44

Default Articles allow for directors to pay interim dividends without the need for ordinary resolution