WS5: Shares

Question 1

What is the nominal value of a share?

Answer 1

Minimum subscription price for that share - more representative of a unit of ownership, than the financial value of the shares.

Question 2

When is a share said to have been allotted?

Answer 2

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

Question 3

What is a treasury share?

Answer 3

A share that has been bought back by the company itself out of distributable profits and are held by the company ‘in treasury’

Question 4

Do pre-emption rights apply to treasury shares?

Answer 4

Yes

Question 5

What is the definition of an ordinary share?

Answer 5

Shares other than shares that as respects dividends and capital carry a right to participate only up to a specified amount in a distribution.

Question 6

What is a preference share?

Answer 6

Payment of dividends / surplus capital ranks higher priority than any equivalent payment to ordinary shareholders.

Question 7

What is the presumption on a preference share, unless stated otherwise?

Answer 7

presumed that a preference share is cumulative, unless otherwise stated.

Question 8

What is a deferred share?

Answer 8

No voting rights / ordinary dividend but sometimes are entitled to a share of surplus profits after dividends paid.

Question 9

Where are the rights attached to each type of share attached?

Answer 9

Articles.

Question 10

What is needed to alter the rights attached to a class of shares?

Answer 10

Follow any specific provision in the Articles

Absent this, consent in writing of holders of at least 75% of the issued shares of that class, or by a special resolution passed a a separate GM of holders of that specific class of rights

Question 11

How can disgruntled shareholders whose class rights have been varied respond?

Answer 11

Shareholders holding 15% of the relevant shares may apply to court within 21 days of the resolution to have a variation cancelled.

Question 12

If shareholders protest a variation, what happens next?

Answer 12

variation will not take effect until it is confirmed by the court
Court will not confirm the variation if it feels that the variation unfairly prejudices shareholders in question.

Question 13

When will a dividend be paid?

Answer 13

When there are sufficient distributable profits

Question 14

What is the difference between final dividends and an interim dividend?

Answer 14

Final - paid following the financial year end

Interim - payable if there are sufficient distributable profits.

Question 15

What is a prospectus on shares? When should a company consider one?

Answer 15

Company should consider every time it allots shares

An explanatory circular, allowing investors to make an informed decision of the financial status of the company, and the rights attaching to the shares.

Question 16

When are shares transmitted?

Answer 16

Death
Bankruptcy - vest in trustee in bankruptcy

Question 17

What are the two most common restrictions on share transfer?

Answer 17

Directors’ power to refuse to register a share transfer

Pre-emption clauses - for transfer, must be specifically inserted into the articles as they are not automatically in there, like they would be for allotment.

Question 18

How is a transfer of shares made? When does beneficial and legal title of shares pass?

Answer 18

Stock transfer form

Beneficial passes on the execution of the stock transfer form

Legal title passes on the registration of the member as the owner of shares in the register of members by the company

New certificate must be sent to the shareholder within two months

Question 19

What stamp duty is payable on shares?

Answer 19

0.5% of consideration, rounded up to the nearest £5 - none payable if consideration is £1000 or less

Over £1000, minimum fee of £5

Question 20

What is the five step process considering the allotment of shares?

Answer 20

1) Is there a cap on the number of shares that can be issued?
2) Do the directors’ need authority to allot?
3) Must pre-emption rights be disapplied?
4) Are new class rights created for the shares?
5) Directors pass a board resolution to allot the shares

Question 21

If a company incorporated under CA1985 has an authorised share capital, or a limited on ASC has been inserted into a CA 2006 company, how can this be amended?

Answer 21

CA 1985: Ordinary resolution

CA 2006: Special resolution.

Question 22

When do directors have automatic authority to allot?

Answer 22

S550: Private companies with only one class of shares in existence - directors have automatic authority to allot new shares of the same class.

Question 23

If directors do not have automatic authority to allot, what must they do?

Answer 23

S551: Directors must be granted authority to allot new shares via an ordinary resolution.

Question 24

What is a S551 one off authorisation subject to?

Answer 24

Subject to limits in terms of time and number of shares to be allotted - so even if a company already has a S551 authority, must be double checked?

Question 25

How are any pre-emption rights commonly disapplied?

Answer 25

Special resolution

Question 26

When are pre-emption rights relevant?

Answer 26

When shares fall under the S560 special definition of equity securities

Question 27

What is the S560 special definition of equity securities?

Answer 27

Ordinary shares Rights to subscribe for / convert securities into ordinary shares Ordinary shares special definition: "Shares other than shares that as respects dividends and capital carry a right to participate only up to a specified amount" Essentially: shares with unrestricted rights to dividends AND capital on a winding up must be offered pre-emptively

Question 28

What are the two methods used to disapply pre-emption rights?

Answer 28

If the authority to allot is a general right to allot under S551: special resolution or by including the disapplication in articles. if authority is s550 private companies with one class of share: disapplied by special resolution for directors' authority to allot

Question 29

If a company wants to pass a specific disapplication of pre-emption e.g. for one person, what must it do?

Answer 29

Directors must provide shareholders with a written statement explaining reasons for the specific disapplication, and the amount to be paid to the company pursuant to the allotment along with a justification. This would then attach to a particular pre-existing S551 authority

Question 30

What must a company do if it wants to create a new class of shares?

Answer 30

Amend articles by special resolution

Question 31

The final step in allocation is a board resolution, which will be preceded by a GM which deals with all the relevant issues to allot. When will a GM not be needed before the BM?

Answer 31

Company - Has no limit in its constitution on the number of shares which can be issued by the company AND - Does not require directors' authorisation because the company is a private company with only one class of shares and there is no restriction in the company's Articles/ already has given authority to allot AND - Issuing shares to existing shareholders in proportion to existing shareholdings AND - Has class rights in its Articles

Question 32

Administrative requirements on allotment of shares: which resolutions should be sent to Companies House, and in which time period?

Answer 32

Within 15 days: -CA 1985: any OR removing ASC cap - CA 2006: any OR allowing the company to use S550 - Any S551 resolution - All special resolutions regarding disapplication of pre-emption rights - Amended Articles if relevant

Question 33

Administrative requirements on allotment of shares: What company forms should be sent to CH?

Answer 33

return of allotment form SH01 and statement of capital, within one month Any new PSC forms

Question 34

Administrative requirements on allotment of shares: when should the company registers be updated by?

Answer 34

Within 2 months of allotment and Update PSC register if necessary

Question 35

Administrative requirements on allotment of shares: when should share certificates be sent?

Answer 35

To new shareholders within 2 months of allotment

Question 36

What are the two transactions subject to the rules on financial assistance?

Answer 36

Acquisition or sale of shares Issue of shares

Question 37

When analysing financial assistance rules, which company is the 'target company'?

Answer 37

The company whose shares are being acquired

Question 38

If the target company is a public company, when does a prohibition on giving financial assistance apply?

Answer 38

If to the target company itself, and any subsidiary of the target company, be it private or public.

Question 39

If the target company is a private company, when does a prohibition on giving financial assistance apply?

Answer 39

Any public company subsidiary of the target company

Question 40

What constitutes financial assistance?

Answer 40

Gift Guarantee, security, indemnity, release, waiver Loan / similar agreement Anything else - catch all A direct or indirect transaction is caught, and also no matter whether given before, at the same time, or after the acquisition Must be given for the purpose of the acquisition.

Question 41

What is the exception to the rule on financial assistance/

Answer 41

Financial assistance will not be unlawful is the principal purpose in giving it is not for the purpose of the acquisition or if that purpose is only an incidental part of some larger purpose - very uncommon to rely on this however.

Question 42

What are the penalties for financial assistance?

Answer 42

Fine Jail Loan void, and the wider transaction may be void also.

Question 43

What is the doctrine of maintenance of share capital?

Answer 43

The money in equity accounts is not something that can be returned to shareholders while it is a going concern

Question 44

What is a buyback of shares?

Answer 44

When a company purchases its own shares from an existing shareholder

Question 45

What are the three ways in which a company can fund a buyback of its own shares?

Answer 45

Distributable profits. Proceeds of a fresh issue of shares made for the purpose of financing the buyback Capital

Question 46

When can a company buy its shares out of distributable profits / fresh issue of shares?

Answer 46

Purchase is not restricted in Articles Shares purchased by the company are fully paid up Company continues to have issued shares other than redeemable / treasury shares.

Question 47

What is the procedure for a company to buy its shares out of distributable profits / fresh issue of shares?

Answer 47

Contract required Approval by OR Contract available for inspection at company's RO for 15 days pre GM - or written resolution can be used

Question 48

What resolutions / meetings / steps are needed When can a company buy its shares out of distributable profits / fresh issue of shares?

Answer 48

BR to approve draft contract BR2 to call GM, and approve a form of notice or written resolution OR to approve contract BR to enter into contract BR to appoint a director to sign the contract File return, notice of cancellation and statement of capital within 28 days Keep copy of contract for 10 years Cancel shares, update register of members / PSC register.

Question 49

What procedural requirements are also needed if a buyback of shares is funded out of capital?

Answer 49

In addition to procedures for buyback out of cash, Accounts prepared no more than three months before directors' statement Check if company has distributable profits - if yes, they should be used. Statement of solvency + auditors report Special resolution to approve payment out of capital

Question 50

Buyback funded by capital: when must the directors' statement of solvency be made? What must it confirm?

Answer 50

No earlier than one week before the GM, confirming that company is solvent and able to pay debts as they fall due, and that it will remain solvent for a period of 12 months after the buyback

Question 51

Buyback funded by capital: what does an auditors report confirm?

Answer 51

Confirms that auditors are not aware of anything to indicate that the directors' opinion is not reasonable.

Question 52

What must a company do within seven days of the passing of the special resolution approving payment out of capital?

Answer 52

Publish a notice in the Gazette; saying where solvency statement and auditors report are, and that any creditor of the company may apply at any time within the 5 weeks immediately following the date of the resolution, apply to the court for an order preventing the payment Put that notice in a national newspaper Filing copies of directors statement / auditors report at CH

Question 53

When specifically should a buyback out of capital take place?

Answer 53

No earlier than five weeks, and no later than 7 weeks after the date of the special resolution No reduction in period ever

Question 54

What must directors do once shares have been bought back?

Answer 54

Within 28 days; send a return to CH and a notice of cancellation, with a notice of capital

Question 55

Summarise the procedure for the buyback of shares out of capital?

Answer 55

Prepare accounts 3 months before BR to approve statement of solvency BR to call a GM GM - contract available for 15 days beforehand Solvency statement and AR signed off one week in advance pre GM / passing of WR GM or WR: Ordinary resolution to approve the contract, special resolution to approve payment out of capital Within 7 days: notices in Gazette and newspapers 15 days; file SR at CH 5 weeks after SR: Creditors and shareholders can object BM2: BR to approve contract, BR to appoint director File return, notice of cancellation and statement of capital within 28 days Keep copy of contract for 10 years Cancel shares, update registers.

Question 56

If a loan is not prohibited financial assistance, what should prudent shareholders do anyway?

Answer 56

Approve the loan by ordinary resolution so that if there are any financial difficulties later on, the loan cannot be attacked for breach.

Question 57

When does a new shareholder's membership of a company take effect?

Answer 57

Only when formally registered in company's register of members