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Module 4
Shares, Shareholders and Allotting Shares
| Question | Answer |
|---|---|
| What is a share? | A right of property that can be bought sold or mortgaged. It carries rights that can be exercised as set out in articles |
| What rights does a shareholder have? | Depends on articles - but three areas -1. Right to attend, speak and vote at General Meetings, 2.Right to participate in dividends 3. Right to receive a return on capital on winding up |
| What different types of shares are there? | 1. Ordinary 2. Preference (inc Participating) 3 . Redeemable 4. Special Classes |
| What is an Ordinary Share? | Basic share - Has one vote for each share, (though this can be removed for some ordinary shares) paid dividends (though may rank behind preference shares), Participate in capital on winding up (but may rank behind etc) |
| What is a Preference Share? | Depends on the articles, but usually - Receives preference rights for distributable profits - eg at 5% of share if there are distributable profits - |
| What are rights of a preferential share holder? | Depends on articles - but usually - Has preferential rights to dividend and to return on capital if wound up - Usually NO voting rights (except PLCs) and NO right to assets beyond return of capital. |
| Are preferential shares cumulative? | Yes, unless otherwise set out in the articles (Webb vs Earle 1875) |
| What does Webb vs Earle 1875 say? | Preference shares are cumulative unless otherwsie stated (ie if no dividend paid on year, added to next year) |
| What is a Participating share? | Acts like a preference share, but in addition, the shareholder will participate in dividends above a certain threshold of profit (so usually PS receive their "interest", then Ordinary up to certain level, then both "participate" |
| What is a Redeemable Share? | Shares that will be bought back by the company at a certain date, or unders certain circumstances. |
| Are all shares Redeemable? | In theory - most are - under Model Article 22(private companies), but can only be redeemed if there are other non redeemable shares - Redeemable shares will be a separate class - usually preference shares |
| What are restrictions on redeeming shares? | Only paid up shares. Set out in articles. - maybe by company or shareholder Maybe by date. Only from distributable profits. For PLC, cannot redeem shares which would mean total share capital below £50k, or 25% of shares paid up |
| What is CA reference for Redeemable Shares | CA 2006 sections 684- 689 |
| What are special classes of share? | Shares can be set up as different classes of shares for particular purposes - Dividends or voting rights may apply differently to different classes of share |
| Why use different classes of share? | EG, so some shareholders can be paid a dividend and others not etc |
| What is the "nominal value" of a share? | The minimum value the shareholder must pay to have the shares issues (or be required to pay at a later date) |
| What is "paid up" shares? | This is where the money is actually paid to the company for the nominal value of the shares |
| Do all shares have to be paid up? | Model articles require all shares to be paid up except for those on formation - |
| What is "authorised share capital"? | Historic - pre 2006 act - Memorandum used to set max amount of shares that could be amended by ordinary resolution NOW - not usually included, but has to be amended by special resolution if it is |
| What is "issued share capital"? | Value of shares issues |
| What is "alloted" share capital? | Value of shares allotted - usually same is issued, but may be different, e.g. if they have allotted shares to employees who have not yet paid for them |
| What share restrictions are there for public companies? | PLCs must have issued share capital of £50k min, and 25% of issued shares should be paid up |
| What needs to be checked before issuing shares? | Authorised Share Capital limits Preemption rights Who has right to allot - Members by ordinary resolution, or Board if authorised by articles or resolution |
| What are Pre-emption Rights? | Section 561 CA 2006 - Must give notice to members to offer shares on same or more favourable terms first - |
| Can pre-emption rights be avoided? | Yes IF ONLY One class or share, OR employee schemes - Model articles require pre-emption rights. so articles need to be amended. OR by special resolution? |
| What form is used to tell Co House about shares allotment? | SH01 |
| Do shares need to be paid up on allotment? | No but MODEL articles require shares to be paid up and PLCs - must be 25% paid up |
| Do shares have to be paid in cash? | No - can be cash, good will, shares in another company etc |
| What is a share premium? | The amount paid for shares above their nominal value (if sold by company) - the premium must be held separately in the books and only used for certain purposes, such as issuing bonus shares |
| What are bonus shares? | Additional shares given to shareholders from profits (through capital redemption reserve) or share premium account |
| What is reserve capital? | Shares that will not be called up, except for winding up |
| What is uncalled capital? | Shares that have not been yet paid up |
| What is the company's capital? | Called up shares at nominal value Share premium account Uncalled up capital (shares not yet paid) Reserve capital |
| Can a private company reduce its capital? | Private companies - Solvency declaration relating to 12 months, 15 days before special resolution - AND special resolution File Solvency statement, resolutoon and amended statement of capital with Co house within 15 days, |
| Can a public company reduce its capital? | Yes, through special resolution and solvency, but ALSO, must file list of creditors and affidavit that all are paid or agree. Court will approve a minute to be filed with Co House |
| What is a shareholders agreement? | Agreement between shareholders about management and operation of company business - private |
| What are benefits of a shareholder agreement(as opposed to being set out in articles? | Can be between shareholders (not just between shareholders and company) Can be enforced by simple claim through courts Can be confidential Parties to agreement can agree changes withough going to special resolution |
| 'What's in a typical shareholder agreement? | Dividend policy List of actions required to go to shareholders, not just board, eg borrowing money, or entering into partnerships Rights to appoint directors Pre-emption rights |
| Can the company be "fettered" by the shareholder agreement? | The Shareholder Agreement is void if it prevents statutory powers being enacted by company BUT shareholders can agree that they wont BEHAVE in such a way as to undertake the actions (ie the company cant be fettered, but the shareholders can) |
| Do Shareholders agreements apply to new shareholders? | No - but usually shareholder agreement requires that shares will not be transferred unless new shareholder agrees to be bound by agreement |
| What has precedence - Shareholder Agreement or Articles? | Articles UNLESS Shareholder Agreement states that it takes precedence (usually does) |
| Does the Shareholder Agreement have to be filed at Co House? | No - But if it contradicts the articles, then it could be deemed to be part of the constitution and then it should be filed (but in practice never is) Section 29 CA 2006 |
Created by:
LouiseG
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