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WS5: Shares Flashcards

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1
Q

What is the nominal value of a share?

A

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

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2
Q

When is a share said to have been allotted?

A

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

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3
Q

What is a treasury share?

A

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

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4
Q

Do pre-emption rights apply to treasury shares?

A

Yes

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5
Q

What is the definition of an ordinary share?

A

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

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6
Q

What is a preference share?

A

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

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7
Q

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

A

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

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8
Q

What is a deferred share?

A

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

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9
Q

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

A

Articles.

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10
Q

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

A

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

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11
Q

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

A

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

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12
Q

If shareholders protest a variation of their share class rights, what happens next?

A

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.

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13
Q

When will a dividend be paid?

A

When there are sufficient distributable profits

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14
Q

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

A

Final - paid following the financial year end

Interim - payable if there are sufficient distributable profits.

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15
Q

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

A

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.

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16
Q

When are shares transmitted?

A

Death
Bankruptcy - vest in trustee in bankruptcy

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17
Q

What are the two most common restrictions on share transfer?

A

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.

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18
Q

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

A

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

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19
Q

What stamp duty is payable on shares?

A

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

Over £1000, minimum fee of £5

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20
Q

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

A

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

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21
Q

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?

A

CA 1985: Ordinary resolution

CA 2006: Special resolution.

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22
Q

When do directors have automatic authority to allot?

A

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

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23
Q

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

A

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

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24
Q

What is a S551 one off authorisation commonly restricted by?

A

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?

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25
How are any pre-emption rights commonly disapplied?
Special resolution
26
What types of shares do pre-emption rights apply to?
When shares fall under the S560 special definition of equity securities
27
What is the S560 special definition of equity securities?
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
28
What are the two methods used to disapply pre-emption rights?
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
29
If a company wants to pass a specific disapplication of pre-emption e.g. for one person, what must it do?
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
30
What must a company do if it wants to create a new class of shares?
Amend articles by special resolution
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?
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
32
Administrative requirements on allotment of shares: which resolutions should be sent to Companies House, and in which time period?
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
33
Administrative requirements on allotment of shares: What company forms should be sent to CH?
return of allotment form SH01 and statement of capital, within one month Any new PSC forms
34
Administrative requirements on allotment of shares: when should the company registers be updated by?
Within 2 months of allotment and Update PSC register if necessary
35
Administrative requirements on allotment of shares: when should share certificates be sent?
To new shareholders within 2 months of allotment
36
What are the two transactions subject to the rules on financial assistance?
Acquisition or sale of shares Issue of shares
37
When analysing financial assistance rules, which company is the 'target company'?
The company whose shares are being acquired
38
If the target company is a public company, when does a prohibition on giving financial assistance apply?
If to the target company itself, and any subsidiary of the target company, be it private or public.
39
If the target company is a private company, when does a prohibition on giving financial assistance apply?
Any public company subsidiary of the target company
40
What constitutes financial assistance?
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.
41
What exceptions are there to the prohibition on financial assistance?
* Principal purpose exception - FA is an incidental part of a larger purpose * Money lending in ordinary course of business * Assistance in respect of an employee share scheme
42
What are the penalties for financial assistance?
Fine Jail Loan void, and the wider transaction may be void also.
43
What conditions are there to the money lending / employee share scheme exceptions to prohibition on FA?
* Company giving assistance is private * OR company giving assistance is public, and net assets are not reduced, or if they are, they are being reduced out of distributable profits
44
What is the doctrine of maintenance of share capital?
The money in equity accounts is not something that can be returned to shareholders while it is a going concern
45
What is a buyback of shares?
When a company purchases its own shares from an existing shareholder
46
What are the three ways in which a company can fund a buyback of its own shares?
Distributable profits. Proceeds of a fresh issue of shares made for the purpose of financing the buyback Capital
47
When can a company buy its shares out of distributable profits / fresh issue of shares?
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.
48
What is the procedure for a company to buy its shares out of distributable profits / fresh issue of shares?
Contract required Approval by OR Contract available for inspection at company's RO for 15 days pre GM - or written resolution can be used
49
What resolutions / meetings / steps are needed When can a company buy its shares out of distributable profits / fresh issue of shares?
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.
50
What procedural requirements are also needed if a buyback of shares is funded out of capital?
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
51
Buyback funded by capital: when must the directors' statement of solvency be made? What must it confirm?
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
52
What kind of company can never buyback its own shares out of capital?
Public company
53
Buyback funded by capital: what does an auditors report confirm?
Confirms that auditors are not aware of anything to indicate that the directors' opinion is not reasonable.
54
What does a directors' statement of solvency confirm?
Company is solvent, able to pay its debts as they fall due, and will remain solvent for 12 months after the buyback
55
When must a directors' statement of solvency be made?
No earlier than one week before the General meeting
56
How long before the directors' statement of solvency can the most recent accounts have been made?
three months beforehand
57
What must you check before a private company buys back its shares out of capital?
That it does not have any distributable profits / proceeds of a fresh issue of shares
58
What must a company do within seven days of the passing of the special resolution approving payment out of capital?
* 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, or write to each of the creditors * Filing copies of directors statement / auditors report at CH
59
What is the aim of the 5 week - 7 week window in which a share purchase of capital can take place?
5 weeks - shareholders and creditors must be able to object to the payment of capital 7 wees - ensure that the view of the directors formed in the statutory declaration is correct at the time of the share purchase
60
When specifically should a buyback out of capital take place?
No earlier than five weeks, and no later than 7 weeks after the date of the special resolution No reduction in period ever
61
What must directors do once shares have been bought back?
Within 28 days; send a return to CH and a notice of cancellation, with a notice of capital
62
Summarise the procedure for the buyback of shares out of capital?
Prepare accounts 3 months before BR to approve statement of solvency and the auditors report, and draft contract **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 and enter into the contract, BR to appoint director to sign it File return, notice of cancellation and statement of capital within 28 days Keep copy of contract for 10 years Cancel shares, update registers.
63
If a loan is not prohibited financial assistance, what should prudent shareholders do anyway?
Approve the loan by ordinary resolution so that if there are any financial difficulties later on, the loan cannot be attacked for breach.
64
When does a new shareholder's membership of a company take effect?
Only when formally registered in company's register of members
65
What must financial assistance do to the company giving it in order to qualify?
Reduce their net available assets to some extent
66
The Articles are silent on variation of class rights. When can class rights be varied on these grounds?
Consent in writing of holders of at least 75% of the issued shares of that class
67
How do you define distributable profits?
Company's accumulated profits less accumlated realised losses
68
What are the two most common forms of restriction on transfer of shares?
Directors refusing to register the shares - must give reasons Pre-emption rights - will be set out in custom articles as not in MA
69
What is the maximum expiry date for a S551 authorisation to allot?
5 years from authorisation
70
What are the three most common ways to disapply pre-emption rights?
1) S551 disapplication to a specific S551 authority 2) S550 disapplication to the general S550 authority 3) Specific disapplication, relating to a specific allotment of shares
71
If the directors wish to pass a specific disapplication of pre-emption rights, what must they do?
Provide shareholders with written reasons, and the amount to paid to the company under the allotment alongside with a justification
72
When will a general meeting not be needed before the board meeting to pass all resolutions to allot new shares?
* No limit on the ASC of the company * Directors already had authority because the company is a private company with only one class of shares, or existing S551 authority continuing * No pre-emption rights to be disapplied * No new class rights to be created
73
What administrative requirements are there on allotment?
Resolutions to CH in 15 days; * Any resolution amending cap * Any OR giving permission to allot * SRs which have disapplied pre-emption rights / amended articles * Amended articles if new class of shares Company forms to CH: * Return of allotment, statement of capital - within 1 month * PSC update if needed Internal registers: * Update register of members within 2 months * PSC register if necessary Share certificates: * Prepares and sent to new shareholders within 2 months of allotment
74
Where will the details of a redeemable share be found?
All details of the redemption, including date and price will be in the Articles or determined by the directors
75
Will a contract be needed to redeem redeemable shares?
No - the terms have already been set out at the time of the allotment
76
Do pre-emption rights apply to private companies by default?
Yes - apply by default under Section 561 CA 2006 unless disapplied by a special resolution.
77
What must you do next after passing a special resolution for a share buyback out of capital?
You must notify creditors within 7 days
78
When you are conducting a shareholder resolution for a buyback, who can not vote?
The shareholder whose shares are being bought not voting
79
Once you have offered shares to directors under pre-emption rights, how long do they have to refuse?
They have 14 days
80
How do you determine whether something is a buyback out of capital vs cash?
Look at the profit and loss account - not just pure cash
81
What shareholder resolutions are needed to pass an interim dividend?
None - board can do it without shareholders, regardless of how many interim dividends have been declared

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