Setting up a company and allowing shares

Question 0

Who calls a board meeting?

Answer 0

Any director

MA9(1)

Question 1

Board meeting procedure

Answer 1

Who calls?
Notice period?
Quorum?
Agenda?
Voting?
Next?
PMM

Question 2

How long is the notice period for a board meeting?

Answer 2

Reasonable notice
Reasonable according to what is usual for the company
Browne v La Trinidad

Question 3

What is the quorum for a board meeting?

Answer 3

2 directors MA11(2)

Unless only 1, in which case 1

Question 4

Agenda for a board meeting?

Answer 4

What to report on

Board resolutions to be passed etc

Approve form of notice of GM

Call GM (s302)

Give notice of GM

Question 5

Voting requirements for a board meeting?

Answer 5

Board must agree by majority decision

MA7(1)

Question 6

Post Meeting Matters for BM1?

Answer 6

Co sec write up mins

Co sec give notice of GM

Question 7

Next after meeting agenda / voting for board meeting?

Answer 7

Either close or adjourn

If adjourn - reconvene BM2

Question 8

General meeting (shareholders) procedure

Answer 8

Notice period?
Quorum?
Agenda?
Voting?
Next?

Question 9

Notice period for a general meeting?

Answer 9

Minimum 14 clear days

Question 10

What is the quorum for a general meeting?

Answer 10

1 SH if only 1 S318(1)

2 SH if 2 or more S318(2)

Question 11

Agenda for a general meeting?

Answer 11

Propose a special resolution to…

Question 12

Voting requirements for a general meeting?

Answer 12

75% under S283(1) and S283(4)

Is automatically a ‘show of hands’ unless a poll vote is demanded - MA42

Question 13

What happens after the voting in a general meeting?

Answer 13

Meeting closed

BM 2

Question 14

Agenda for BM2?

Answer 14

Report that the special resolution was passed at the GM

Propose board resolutions to…

Question 15

Post meeting matters for BM2?

Answer 15

Co sec file X with registrar
Write up mins of board meeting and enter into minute book
Forms to co house i.e. appointment of director etc

Question 16

How is a procedure plan different when it is via a WRITTEN RESOLUTION?

Answer 16

No GM to call or give notice for
Instead:
Propose written resolution
Approve form of written resolution, and designate is a special resolution (S283(3)(a))
Give SH instructions on how to vote
Direct co-sec to send resolution to each member

After meeting - adjourn rather than close. (BMII is reconvened rather than opened)

A written resolution is passed when the required majority have signed - S283

PMM:
Send copy of the written res to companies house within 15 days (S29)

Keep copy for 10 years (S355)

Question 17

Within how many days should a written resolution be sent to companies house?

Answer 17

15 days (S29)

Question 18

How many years should a copy of the written resolution be kept at the company?

Answer 18

10 years (S355)

Question 19

What is the basic 6 STEP procedure for issuing shares?

Answer 19

1) Is there a CAP on the amount of share capital that can be issued by the company?
2) Do the Ds have authority to allot new shares?
3) Do pre-emption rights apply, and need to be disapplied?
4) Are new class rights being created?
5) Ds pass board resolution allotting shares
6) Post meeting matters

Question 20

What is the first step of the procedure to issue shares?

Answer 20

Is there a cap on the amount of shares company can issue?

Firstly - check articles and memo of association, and any resolutions passed and filed at CH.

CA ‘06 company - no standard cap
CA ‘85 company - likely to have cap

If there is a cap and will exceed it, use SPECIAL RESOLUTION (75%) and remove it, or increase it.

Amending articles (S21 - by special resolution)

Under S617(2)(a) - share cap increases automatically when issue shares

Question 21

What is S21 CA 06 and why is it relevant?

Answer 21

If want to amend articles, need special resolution

Relevant because may need to amend articles if there is a cap on issued share capital and it needs to be removed or increased

Question 22

S617(2)(a) CA 06

Answer 22

For an 06 company, the authorised share capital will increase automatically everytime new shares are issued by the company

Question 23

What is the second step of the procedure to issue shares?

Answer 23

2) Do the Ds have authority to allot?

Check memo of association & articles & resolutions

Under S549, Ds must not allow new shares unless either:

authorised by co (S551)

S551 authority can be given by articles or ORDINARY resolution

(or if is a private co with only 1 class of shares (S550), do not need authorisation unless otherwise prohibited)

Question 24

S549 CA 06

Answer 24

Ds must not allot new shares unless they are authorised by the company, or is a private company with only one class of share

Question 25

S551 CA 06

Answer 25

Ds can gain authority by including in the articles (amending articles requires a special resolution under S29) or by ordinary resolution (50%). Ds will only ever have authority up to cap, if any, in step 1

Question 26

S550 CA 06

Answer 26

The Ds of a private company with only one class of shares do not need special authorisation to allow new shares. (unless specifically prohibited in articles etc). '85 company can pass ordinary (50%+1) resolution to authorise use of this provision.

Question 27

What is the third step of the procedure to issue shares?

Answer 27

Do pre-emption rights apply, and do they need to be disapplied? S561 grants pre-emption rights to SH. S561: Company cannot allot 'equity securities' to a person unless on same or more favourable terms. If shares being issued have a cap on dividends AND capital on winding up, is NOT an equity security, and so pre-emption rights and S561 do not apply.

Question 28

Can pre-emption rights be disapplied?

Answer 28

Yes 1) Can be generally disapplied by a special resolution or in articles under S570(1) 2) Can be disabled for specific allotment - needs a special resolution under S571 3) Private co can exclude pre-emption rights in articles (S567) 4) Private companies with one class of share can exclude pre-emption rights in articles (S569)

Question 29

What is an equity security and where is it defined?

Answer 29

S560 - equity security is an ordinary share or the right to subscribe / convert to ordinary share. S560(1) defines ordinary share as shares where right to dividends and capital on winding up is not capped. SO if right to dividends and capital on winding up is capped? Not ordinary share. So not equity security. So doesn't come under pre-emption.

Question 30

What is the fourth step of the procedure to issue shares?

Answer 30

Are new class rights being created? (i.e. preference shares) If so, will require a change of articles and therefore a SPECIAL resolution under S21.

Question 31

What is the fifth step of the procedure to issue shares?

Answer 31

Ds pass board resolution at BM 11 - majority MA7(1) All shareholder resolutions in GM must be before BM 11

Question 32

What is the sixth step of the procedure to issue shares?

Answer 32

Post meeting matters ``` Filing new articles if amended File SH01 and statement of capital at CH File special resolutions under S29(1)(a) File OR granting Ds to allot - S551 Update share member register Send share certificates - S769 ```

Question 33

What is high gearing? When is a company 'highly geared?'

Answer 33

High gearing is bad because it shows a company are a credit risk Being highly geared means that there are higher funds in the company from long term loans, than from selling shares (low equity). If there is a lot of equity in a company, the company has to make lots of losses before it can't afford to pay back its creditors. When a company has low equity, do not have much leeway before can't pay creditors.

Question 34

Equity finance v Debt finance for a company, things to consider

Answer 34

``` Return on investment? When get back investment? Priority? Control? Other ```

Question 35

Equity finance v Debt finance - return

Answer 35

Pay SHs dividends, but only if have made profit. SH may also make capital growth but that is not guaranteed. With a loan, must pay the investor back interest regardless

Question 36

Equity finance v Debt finance - priority

Answer 36

SH at the bottom of priority pile Creditors will be paid before SH, could be at the top depending on what security they take

Question 37

Equity finance v Debt finance - investment return

Answer 37

SH may get capital back on winding up Can sell shares (difficult if not public), or company may buy back shares Bank gets money back in period stated in loan agreement, or if they sale the debt (bonds, debentures)

Question 38

Equity finance v Debt finance - control

Answer 38

SH have voting rights - extend of control will depend on how many and on what rights the shares give Borrower will give lender various undertakings. Lender will almost certainly have received security.

Question 39

Equity finance v Debt finance - other

Answer 39

Need people willing to buy shares which is influenced by market Dividends are not tax deductible expense Banks may not be willing to lend i.e. recession May have already given security for previous loans Interest on a loan is tax deductible - big advantage