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COMPANIES FINANCE
COMPANIES

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WHATS INSIDE THIS TOPIC?


Shares Share capital Loan capital and charges

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Shares
Types Class rights Allotment of shares Rights on pre-emption Shares at discount Shares at premium Payment for shares Transfer of shares
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Types of shares

Types Ordinary shares Preference shares


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Ordinary shareholders
1. Ordinary shares that are not preferred shares and do not have

any predetermined dividend amounts.

2. An ordinary share represents equity ownership in a company and

entitles the owner to a vote in matters put before shareholders in proportion to their percentage ownership in the company. available after dividends on preferred shares are paid.

3. Ordinary shareholders are entitled to receive dividends if any are 4. They are also entitled to their share of the residual economic

value of the company should the business unwind; however, they are last in line after bondholders and preferred shareholders for receiving business proceeds. 5. As such, ordinary shareholders are considered unsecured creditors
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Preference shareholders
Company stock with dividends that are paid to shareholders

before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not have voting rights There are two types of preference shareholders :
Cumulative Non-cumulative
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Redeemable shareholders
A redeemable share is once which is issued on terms that it

can be bought by the company at the option of the company or shareholder

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Rights & bonus issues


Right issue- is an allotment of additional shares made to

existing members usually pro rata to their existing holding in the companys shares. The member may subscribe to right issue or else sell this right to others to obtain the value. Bonus issue- is the capitalization of reserve of a company by the issue of additional shares to existing shareholders in proportion of their holding. Such shares are normally fully paid with no cash called from their subscribers

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Class rights
Any shares which has different rights from others is grouped

with the other shares carrying identical rights to form a class.


The rights attached to a class of shares can be varied only in

accordance with the articles or :


A special resolution of the relevant class A holder of at least 15% issued shares from a relevant class may apply

to court within 21 days of the consent being given by that class, to have variation cancelled A notice given particulars of any variation or creation of new class must be delivered to registrar within one month of the variation
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Allotment of shares
Shares are generally said to be issued once the allotee receive

the letter of allotment or share certificate as evidence of title. Once his name is entered on register of members he is then a member of the company.

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Statutory pre-emption rights


Pre-emption rights are the rights of shareholders to be offered

any new issue of shares before the shares are offered to nonshareholders.

The offer of shares to shareholders is usually required to be pro-

rata to their existing shareholding. It most commonly takes place through a rights issue. The purpose of pre-emption rights is to ensure that shareholders have an opportunity to prevent their stake being diluted by new issues. In the UK (and most other countries) pre-emption rights are required for publicly traded companies; by both company law and listing rules.
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Allotment of shares
The general rule is that the director may allot shares on

following basis:
There must be authority given either:

By articles By ordinary resolution


The authority must state :

The maximum number of shares to be allotted Expiry date for authority not more than 5 years after authority

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Allotment of shares
1. The authority given may be varied , renewed or removed by

an ordinary resolution
2. The change in authority requiring articles to be altered

requires a special resolution

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Shares at discount
Shares cannot be issued at discount The no-discount rule only requires that in allotting its shares

the company shall not fix a price which is less than nominal value of share however may leave a part of the price to be paid later. For example, the 1 share may be issued at 1 but only partly paid 75p on allotment and 25p when called for by installment.
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Shares at a premium
Shares can be issued at a premium. In such cases a sum equal

to the premium on each share must be transferred to a share premium account. If a company allot 100 of its 1 nominal shares at 1.50 in cash. CASH 150 SHARE CAPITAL 100 SHARE PREMIUM -50

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Use of share premium account


1. To write off expenses of the issue of those shares 2. T0 pay any commission lawfully on the issue 3. May be used to allocate bonus shares

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Share premium account cannot be used for


1. Paying dividends 2. To write off expenses relating to companys formation 3. To write off expenses related to issue of companys

debentures

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