Share and loan capital

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  • Created by: Lucy
  • Created on: 20-07-15 16:37
Unless restricted by the articles who have authority to allot shares
Directors of a private company with one class of share
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When a plc or private company have more than one class of shares who's authority do they require to allot shares ?
Authority from the members is required.
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The authorisation of allot of shares may be given where ?
In the articles or ordinary resolution
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What must be specified in relation to the allot of shares?
Time limit and maximum number of shares to be allocated
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What is the maximum time limit ?
5 years
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Who must the directors use their power for the benefit of ?
The company as a whole
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What must the directors avoid a breach of ?
Breach of their fiduciary duty
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New ordinary shares issued for cash must be issued to who ?
Existing shareholders.
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How many days do the shareholders have to accept the shares issued for cash ?
21 days
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who can display S.561 by having an appropriate clause in their articles ?
Private companies
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What must public and private companies have to allow them to display S.561?
Via special resolution or by including an appropriate clause in the articles
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Payments for shares can be made how
In money or money's worth
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If a plc issues shares for non-cash consideration the consideration must be value by who ?
Must be valued by an independent accountant
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What does S.580 CA 2006 pre-emption rights state ?
Prevents issue of shares at a discount to nominal value.
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Where must a premium be credited to when a share is issued at a premium to nominal value, whether cash or otherwise ?
To a share premium account
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Is a share premium account non-distributable
yes - it can only be used for four purposes
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What are the four purposes of a share premium account ?
Writing off preliminary expenses of incorporation, issuing bonus shares, writing off share + debenture issue costs, including any discount on issue of debentures, providing the premium on redemption of shares + debentures
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What % of the nominal value must be paid up on allotment ?
25% of the nominal value plus the whole of any premium.
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What can shares in a plc not be issued in return for ?
A promise to do something
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Ordinary shares are also known as what ?
Equity share
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What rights do ordinary share owners have ?
right to attend general meetings, vote, + share in the distribution of assets.
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Preference shares carry the right to what ?
general right to a dividend at a pre-determined rate, in priority to ordinary shares - paid dividend first e.g. 5% pref £1 share
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Do preference shares have the absolute right to a dividend ?
No, merely to priority if any dividends are to be paid.
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The preference dividend is deemed to be what ?
Cumulative unless stated otherwise
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What does it mean when a preference dividend is deemed to be cumulative ?
if dividend is not paid the holder of the share is entitled to the dividend at some time in the future.
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Unless classified as what do they have a right to additional dividend over and above specified rate ?
Unless classified as participating preference shares.
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Do preference shares have the right to vote ?
no
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Do the preference shares have a right to participate in any surplus on liquidation
No
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What do preference shares not have an automatic right to ?
No automatic right to priority return of capital.
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What is the variation of class rights ?
This is an alteration of rights of the holders of a certain class of shares
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What is the standard procedure for variation ?
by passing of a special resolution of that class either at a meeting or in writing.
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Must the articles be followed if the impose requirements are less onerous than a special resolution ?
YES
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Minority protection is holders with at least how much % of class
15% of the class, provided they did not vote in favour
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How many days after the resolution do they have to object ?
21 days
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Who can either approve or set aside the variation ?
the courts
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What is not an example of variations of class rights ?
If someone has A and B shares each carrying one vote and then B shares change to give them 2 votes. This is not a variation of A shareholders rights
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What is not an example of variations of class rights ?
Issuing shares to allottees who are not members of that class.
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What is not an example of variations of class rights ?
subdividing shares of another class with the incidental effect of increasing the voting strength of that other class
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What is not an example of variations of class rights ?
Creating new class of preference shares with priority over an existing class of ordinary shares
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Company has implied power to borrow for what purposes ?
incidental to its trade, but it is usual for an express power to be given in the objects clause in the Constitution of Association.
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If not trading what must the company have ?
an expressly stated power to borrow.
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Model articles give directors the power to do what ?
run the company, but the articles may limit the amount directors can borrow.
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Who will be able to enforce the contract against the company if the company isn't actually authorised to borrow ?
3rd party under S.40 CA 2006.
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What is debentures
Document stating the terms of a loan, including date of repayment + rate of interest i.e. a written acknowledgement of a debt.
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Who has the ordinary + preference shares ?
Own company
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Who has the rights to debentures ?
Creditor
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Who gets voting rights ?
Ordinary shares
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What return on investment do ordinary shares get ?
dividend - no automatic right or set date of payment. Directors decide if a dividend is to be paid + how much to pay. A distribution of post-tax profits.
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What return on investment do preference shares get ?
Dividend - no automatic right. Fixed payment. Arrears usually cumulative
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What return on investment do debentures have
Interest. Fixed. Must be paid on due date. Accounted for as a pre-tax expense
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Which is transferable ordinary shares, preference shares or debentures ?
ALL
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Which is issued to the public ordinary shares, preference shares or debentures ?
ALL
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Which is issued at discount to nominal value ?
Debentures
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Is ordinary shares redeemable ?
Yes, subject to companies Act restrictions
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Is preference shares redeemable ?
Yes, subject to issue conditions. Fixed return
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Are debentures redeemable ?
Easily redeemable. Fixed return.
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Who is last to be paid when the company goes into liquidation?
Ordinary shares
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Do debentures get paid if the company goes into liquidation
They are a creditor and therefore paid before shareholders.
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Are preference shares paid when the company goes into liquidation
Usually, but not necessarily paid before ordinary shares.
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What gives creditors priority over other creditors ?
A charge over the assets of the company.
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What is a fixed charges - e.g. mortgage
It is attached to a specific asset or assets at date of creation. Therefore can't be sold without permission from the lender.
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What happens if the proceeds of sale of the asset are insufficient to repay the loan ?
The balance of the loan is still repayable but the lender ranks as an unsecured creditor.
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What is a floating charge - e.g. stock in warehouse
Attaches to a company's assets generally. prior to crystallisation the company may freely trade assets without reference to the lender.
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Who can grant floating charges ?
Corporate bodies
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Who can't grant floating charges ?
Partnerships and sole traders.
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What is the order of the priority of charges ?
Similar charges are ranked in order of creation.
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What is ranked higher, fixed charges or floating charges ?
Fixed charges, even if created later.
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When can a negative pledge clause be inserted ?
In terms of floating charges.
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What does a negative pledge prevent the company from doing ?
creating subsequent fixed charges
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Where will a subsequent fixed charge rank ?
behind a floating charge if the fixed charge holder is aware of the existence of the negative pledge clause.
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Within how many days must a fixed and floating charge be registered with Registrar of charges ?
Within 21 days of creation.
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What happens if the company fail to register the charge ?
renders the charge void (destitute of legal effect) and the loan remains unsecured.
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who is liable to a fine if the company fail to register the charges ?
Company and its officers are liable
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The company must maintain a register of charges which is open to who ?
inspection by members and creditors free to charge, and others on payment of a small fee.
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What happens if the company fail to maintain their own register of charges ?
Nothing, it does not render the charge invalid.
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Other cards in this set

Card 2

Front

Authority from the members is required.

Back

When a plc or private company have more than one class of shares who's authority do they require to allot shares ?

Card 3

Front

In the articles or ordinary resolution

Back

Preview of the back of card 3

Card 4

Front

Time limit and maximum number of shares to be allocated

Back

Preview of the back of card 4

Card 5

Front

5 years

Back

Preview of the back of card 5
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