Raising Finance

Question 1

What is equity finance?

Answer 1

Company sells ownership share to third party

Question 2

What is the nominal or par value of shares?

Answer 2

The stated minimum value at company formation

Question 3

What is the amount above the nominal or par value called?

Answer 3

Premium

Question 4

What are pre-emption rights?

Answer 4

When a company issues more shares for cash they must first offer them to existing shareholders

Question 5

What is the deadline for a shareholder exercising their pre-emption right?

Answer 5

14 days from offer

Question 6

When do pre-emption rights not apply?

Answer 6

When the shares are not offered for cash

To preference shares

Question 7

How can shareholders disapply a pre-emption right?

Answer 7

By special resolution

Question 8

Can articles amend pre-emption rights?

Answer 8

Yes

Question 9

What do the model articles grant to a directior regarding the transfer of shares?

Answer 9

Absolute power to refuse transfer

Question 10

What is debt finance?

Answer 10

Where a company borrows to raise capital

Question 11

What is the benefit of debt finance?

Answer 11

The debt holder has no ownership interest in the company

Question 12

Who has the power regarding debt finance under the model articles?

Answer 12

The directors

Question 13

What is debt finance?

Answer 13

A loan

Question 14

What types of loan are there?

Answer 14

Secured or unsecured

Question 15

What is a fixed charge?

Answer 15

A loan over assets that a company will hold for a long period of time

Question 16

How is a fixed charge holder often protected?

Answer 16

The company will not be able to dispose of the asset or obtain an additional charge over it without permission of the creditor

Question 17

What is a floating charge?

Answer 17

Charge over a group of assets that change regularly

Question 18

What is the filing requirement for a charge?

Answer 18

Must be registered at companies house within 21 days

Question 19

What is the priority of secured debts?

Answer 19

Fixed charges over the same asset take priority in date order of their creation, so long as they were validly registered at Companies House

Floating charges over the same assets take priority in date order of their creation, so long as they were validly registered at Companies House

A fixed charge will take priority over a floating share over the same asset, even if the floating charge was created before the fixed charge