shares and debentures Flashcards
(21 cards)
what is a floating charge
A charge which is not attached to any particular asset(s) identified when the charge is made. Instead it attaches to the company’s assets as they then are, if and when the charge crystallises. The company is in the meantime free to dispose of its assets, and any new assets which the company may acquire are available to the debenture holder should thecharge crystallise.
What is a charge and what are the 2 main types
A charge is a security, granted in favour of a creditor (usually a lender), to secure the repayment of a loan or the performance of other obligations.
Fixed Charge
Flouting charge
what is the insolvency priority order
insolvency legal costs
fixed charge holders
preferential creditors
floating charge holders
unsecured creditors
shareholders
How does a debenture get their money back if they become insolvent
When a company becomes insolvent, it means it can’t pay its debts. In this situation, a debenture holder (a type of creditor) can still get their money back — but how much they recover and how quickly depends on the type of debenture they hold and the company’s assets.
- Fixed Charge Debenture Holders (secured against specific assets):
They have first claim over the specific asset (e.g. property, equipment).
If the company is liquidated, that asset is sold and the proceeds go directly to the debenture holder.
🏢 Example: If a debenture is secured on a building, and the company collapses, the building is sold to repay the debt.
- Floating Charge Debenture Holders (secured against general assets like stock or receivables):
They are paid after fixed charge holders and certain preferential creditors (like employee wages).
The floating charge becomes “fixed” when the company enters liquidation — this is called crystallisation.
- Unsecured Debenture Holders:
They have no specific asset to claim.
They’re treated as ordinary creditors, often repaid only after secured creditors and preferential debts are satisfied.
They may get only a small percentage of what they’re owed — or nothing at all.
When can a debenture holder enforce their security
A debenture holder can enforce their security when the borrower (company) defaults on the terms of the debenture agreement.
*The lender (debenture holder) has the right to appoint an administrator to take control of the company if it defaults on the loan. This follows the lender calling in the loan for repayment.
*
*The threat of appointing an administrator can often be enough to make a company repay the debt, or agree terms to repay it.
what is debenture another word for
Loan agreements
what are debentures
a loan agreement in writing between a lender and borrower that is registered at companies house.
gives lenders securities over borrowers assets
its often used by banks, factoring company and invoice discounter to take security for their loan (only taken by limited companies or LLP not sole trader)
directors who have lent money into the business could also take a debenture to secure a loan, so can private lenders
What is the process of giving/ alloting shares to the public?
A prospectus shall be filed with Registrar.
No allotment of shares shall be made to public unless the minimum subscription amount stated in the prospectus is raised and received by the company.
Application for shares should be made in prescribed form.
No allotment shall be made until the beginning of the 5th day after a date on which prospectus is issued.
Companies intending to offer must make an application to one or more stock exchanges for permission.
The whole of the application money should have been paid and received by company in cash.
what are dividends and its rules?
*A dividend is a payment made by a corporation toits shareholders, usually as a distribution of profits . When a corporation earns a profit or surplus, it can either re-invest it in the business (called retained earnings), or it can distribute it to shareholders.
Rules:
*To be paid only out of Profit
*Resolution passed at the AGM
*Payment of Dividend in Proportion to paid-up capital
*To be paid to Registered Shareholder
*Unpaid Dividend to be transferred to Unpaid Dividend Accounts
what are rights shares
They are shares ¨issued at any time after two years from incorporation or one year from first allotment, whichever is earlier.
¨Must be offered to the existing shareholders in proportion to their holding.
¨For listed company, information on quantum and proportion shall be
supplied to the concerned stock exchange.
¨Company must give notice of offer and the number of shares offered to existing shareholders
which account mentions the issuing of premium shares and what dies it say about the rules of issuing these shares
*Premium to be used only for the following purposes as mentioned in Section 78(2): of the CA
*For issuing fully paid bonus shares;
*For writing off preliminary expenses;
*For writing off commission, discount expenses on issue of debentures; and
*For providing for premium payable on redemption of Redeemable
*Preference Shares or debentures.
what is meant by issues of shares at a premium
when companies can issue shares at a premium value to shareholders, when shareholders look to sell these shares then they would also receive a premium value-
Premiums are kept in seperate accounts known as securities
what is forfeiture and when can a board of directors forfeit a share
Forefeiture of shares is the cancellation of the shares and it can occur in situations whereby the shareholder fails to pay the remaining share amount
- where insider information has occured which resulted in the buying of those shares
what are sweat equity shares
Sweat Equity Shares are equity shares issued by a company to its employees or directors at a discount, or as a consideration for providing know-how or a similar value to the company.
what are ordinary shares
shares which are ordinary in the course of a company’s business Ordinary shares give you ownership, voting rights, and a share in the profits — but also carry higher risk if the company fails.
what are preference shares and give me examples
Preference Shares is a stock which may have any combination of features’ not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument.
*Cumulative Preference Shares- owed dividends that is paid back at a later date and can accumilate as time goes on
*Non-Cumulative Preference Shares - if a company misses a dividend then it is over for the shreholder, they do not get anything
*Convertible Preference Shares - can be converted into ordinary shares after a certain period of time
*Non-Convertible Preference Shares - cannot be converted into any other type of share
*Redeemable Preference Shares - the company can buy back and reddem their shares almost like a loan
What are the different types of shares
Preference Shares
Equity Shares - also called as ordinary shares.
Sweat Equity Shares
difference between a company limited by shares and a company limited by guarantee
“A company limited by shares is designed for generating profits for shareholders, while a company limited by guarantee is typically used for organisations that don’t aim to make profits for private gain.”
what is a share certificate and share warrent
SHARE CERTIFICATE is a document under the seal of the company, Signed by at least 2 directors & secretary ,Specifying the shares, Amount paid-up & name of the share holder.
SHARE WARRANT is a document issued by a public company stating that its bearer is entitled to the shares specified therein.
what is a share?
¨A SHARE is the interest of the share holder in a company.
¨A Share is evidenced by a share certificate.
¨ A share certificate is issued by a company under its common seal.
what is a stock
¨Stock is the aggregate of fully paid-up shares ,consolidated & divided for the purpose of convenient holding into different parts.
¨It may be transferable or split up into fractions of any amount, without regards to the original face value.
