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Chapter

Cover Company Law Concentrate

7. Capital and capital maintenance  

Each Concentrate revision guide is packed with essential information, key cases, revision tips, exam Q&As, and more. Concentrates show you what to expect in a law exam, what examiners are looking for, and how to achieve extra marks. This chapter discusses the two principal types of capital that companies acquire: share capital (capital obtained by selling shares) and debt capital (capital borrowed from others). Having obtained share capital through the selling of shares, the law requires that the company ‘maintain’ that capital by not distributing it in unauthorized ways, notably by prohibiting companies from returning capital to the shareholders prior to liquidation.

Book

Cover Mayson, French & Ryan on Company Law
Mayson, French & Ryan on Company Law looks at all aspects of current UK company law. The 37th edition continues the tradition of providing accurate technical detail, examination of theory, and quotations from key cases. The volume starts with an overview of the topic. Next it looks at the establishment of companies. It moves on to consider finance which includes an examination of shares, accounts, loans, market abuse, capital and borrowing. The next part of the text considers governance. It looks at shareholders, directors, duties of directors, company secretaries and auditors, remedies and acting for a company. The last part of the text examines insolvency and liquidation.

Book

Cover Mayson, French, and Ryan on Company Law
Mayson, French & Ryan on Company Law looks at all aspects of current UK company law. The 38th edition continues the tradition of providing accurate technical detail, examination of theory, and quotations from key cases. The volume starts with an overview of the topic. Next it looks at the establishment of companies. It moves on to consider finance which includes an examination of shares, accounts, loans, market abuse, capital and borrowing. The next part of the text considers governance. It looks at shareholders, directors, duties of directors, company secretaries and auditors, remedies and acting for a company. The last part of the text examines insolvency and liquidation.

Chapter

Cover Company Law

16. Share capital  

This chapter assesses what share capital is. A share is an item of property that confers upon its holder rights as set out in the Companies Act 2006 (CA 2006) and the constitution. A public company must have an allotted share capital of at least £50,000, while private companies are not subject to a minimum share capital requirement. Who has the power to allot shares depends upon the type of company, the class of share being allotted, and how many other classes of shares the company has. However, shareholders generally have a right of pre-emption, meaning that, when a company issues new shares, they have to first be offered to the existing shareholders. Meanwhile, a transfer of shares occurs where a shareholder sells or gifts their shares to another, while a transmission of shares usually occurs where shares pass from one person to another due to the operation of law.

Chapter

Cover Company Law

17. The maintenance of capital  

This chapter addresses what is known as the capital maintenance doctrine—a series of rules designed to protect the company’s creditors by ensuring that capital is maintained and not returned to the company’s members. Any limited company can reduce its share capital by passing a special resolution followed by court confirmation. A private company can reduce its share capital by passing a special resolution supported by a solvency statement. On the other hand, public companies are generally prohibited from providing financial assistance to others to acquire their shares. Meanwhile, a company can generally only pay a dividend out of distributable profits. The typical three-stage process for paying dividends is that the directors recommend an amount to be distributed by way of dividend; the company declares the dividend by passing an ordinary resolution; and the dividend is paid out.

Chapter

Cover Sealy & Worthington's Text, Cases, and Materials in Company Law

12. Distributions to Shareholders and Capital Maintenance  

This chapter deals with raising capital from shareholders (equity capital). It considers: attracting capital and protecting both shareholders and creditors; terminology associated with legal capital; the minimum capital requirements for company formation; limiting access to shares; offers to the public to purchase shares and remedies for misleading offers; and collecting in the company’s capital (issue of shares at a discount, issue of shares at a premium and issue of shares in exchange for property).

Chapter

Cover Concentrate Questions and Answers Company Law

9. Share Capital  

The Concentrate Questions and Answers series offers the best preparation for tackling exam questions and coursework. Each book includes typical questions, suggested answers with commentary, illustrative diagrams, guidance on how to develop your answer, suggestions for further reading, and advice on exams and coursework. This chapter examines the law on share capital for public and private companies. The doctrine of capital maintenance ensures that the company has raised the capital it claims to have raised; and that the capital is not subsequently returned, directly or indirectly, to the shareholders. There is a great deal of (mainly statutory) law surrounding this doctrine This chapter considers the capital maintenance doctrine itself and many related topics, including: the issue of shares for non-cash consideration, issue of shares at a discount, reduction of capital, purchase of a company’s own shares, redeemable shares, payment of dividends, and financial assistance by a company for the purchase of its own shares.

Chapter

Cover Introduction to Company Law

7. Creditors  

Because of limited liability, creditor protection has always been a feature of company law. Large creditors can contract ex ante for customised protection and the law facilitates this in various ways, notably by the creation of the floating charge. Non-adjusting creditors require the protection of mandatory rules, at least in some situations. Creditor protection in relation to companies in the vicinity of insolvency is now well established, not only through ‘wrongful trading’ but also via transaction invalidity rules and directors’ disqualification. For going-concern companies the emphasis is on rules restricting the shifting assets to shareholders via distributions and associated rules relating to the maintenance of capital.

Chapter

Cover Company Law

20. Debt capital and security  

This chapter discusses why companies borrow money, the various sources of debt capital, and the rules relating to secured and unsecured borrowing. An obvious reason why a company might borrow is because it is struggling financially, and so other forms of capital will prove insufficient to meet the company’s debts or liabilities. In such a case, debt capital may be the only obtainable form of capital. Like shares, debt securities are tradeable financial instruments that a company can issue in order to raise finance. The principal form of security is a charge, which can be either fixed or floating. When determining whether a charge is fixed or floating, the courts will focus not on how the charge is labelled, but on the rights and obligations which the parties intended to grant each other. A failure to register the charge will render the charge void against a liquidator, administrator, or creditor.

Chapter

Cover Sealy & Worthington's Text, Cases, and Materials in Company Law

13. Raising Debt Capital: Borrowing, Debentures and Charges  

This chapter discusses the rules which govern distribution of the company’s assets to its shareholders and the rules which ensure that a company’s legal capital is maintained in the company’s hands. It covers: controls over a company’s distribution of capital; permitted reductions of capital; redemptions and repurchases of shares; financial assistance by a company for the acquisition of its own shares; and dividend distributions.

Chapter

Cover Mayson, French & Ryan on Company Law

10. Distributions and maintenance of capital  

This chapter examines the controls imposed on return of a company’s capital to its members, first by considering the common law general principle that return of capital to shareholders is illegal unless permitted by statute. It then discusses the problem of how to distinguish between a legal distribution of profits and an illegal return of capital; transfer of profits to a capital redemption reserve and use of profits to pay up bonus shares; company’s issuance and redemption of redeemable shares or purchase of its own shares; purchased shares as treasury shares; and how a company may reduce its issued share capital by special resolution. The chapter also looks at capitalisations and employees’ share schemes. It includes analysis of three court cases that are particularly significant to distributions and the maintenance of capital.

Chapter

Cover Company Law

7. Share capital  

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter examines how company law governs maintenance of a company’s share capital, with emphasis on the distinction between private and public companies. It also discusses various ways in which shareholders might legally receive funds (‘distributions’) from the company, including issuance of shares and payment of shares in kind (that is, goods, property, or services rather than in cash). The relevance of the nominal value of shares issued to shareholders, the issue of paying dividends to shareholders, and disguised return of capital to shareholders are considered as well. The chapter also examines two other means of returning funds to shareholders, reduction of share capital and redemption or purchase by a company of its own shares, before concluding with an assessment of the prohibition and the exceptions concerning the issue of financial assistance for the acquisition of shares in a public company.

Chapter

Cover Mayson, French, and Ryan on Company Law

10. Distributions and maintenance of capital  

This chapter examines the controls imposed on return of a company’s capital to its members, first by considering the common law general principle that return of capital to shareholders is illegal unless permitted by statute. It then discusses the problem of how to distinguish between a legal distribution of profits and an illegal return of capital; transfer of profits to a capital redemption reserve and use of profits to pay up bonus shares; company’s issuance and redemption of redeemable shares or purchase of its own shares; purchased shares as treasury shares; and how a company may reduce its issued share capital by special resolution. The chapter also looks at capitalisations and employees’ share schemes. It includes analysis of three court cases that are particularly significant to distributions and the maintenance of capital.

Chapter

Cover Company Law

22. The doctrine of capital maintenance  

This chapter discusses the doctrine of capital maintenance which precludes the return of capital, directly or indirectly, to the shareholders ahead of a winding up of the company. The discussion covers the purchase and redemption of a company’s own shares, reduction of capital, distributions to the members, and financial assistance by a company for the acquisition of its own shares. Purchase and redemption schemes (buy-backs) are common transactions and are discussed in detail as is the procedure for a reduction of capital. The key issue for creditors, however, is the risk posed by distributions to members and much of the chapter is devoted to discussing the distribution rules laid down in CA 2006, Part 23 and the common law. The chapter discusses the rules as to distributable profits and the liability of directors in the case of improper distributions and, in particular, their liability for dividends improperly declared.

Chapter

Cover Company Law

21. Share capital—capital raising and payment  

This chapter considers the statutory rules governing share capital requirements, especially the rules governing allotment of shares, payment for shares, and capital raising. Share capital rules are predominantly statutory and this chapter looks at the statutory framework on allotment including the authority of the directors to allot shares, the need for rights issues; the ability to accept a non-cash consideration; and the prohibitions on various types of consideration, in the case of public companies. Minimum capital requirements and the need to avoid issuing at a discount are considered. A key issue for public companies is whether to make an offer of their shares to the public or seek to have their shares traded on a public market. The regulatory framework for public offers of shares, essentially requiring a prospectus, is considered.

Chapter

Cover Mayson, French & Ryan on Company Law

6. Shares  

This chapter considers one way of becoming a shareholder of a company with a share capital: by taking shares from the company in exchange for a contribution of capital. The number and class of shares of the company that the member holds determines the extent of the member’s undertaking to contribute capital, and of entitlement to share in distributions and vote at meetings. Share allotment in exchange for a capital contribution is explained, and the need for public companies to have a minimum contributed capital is emphasised. The chapter also looks at possible remedies available to a person who has been induced to take an allotment of shares by a misrepresentation, including rescission of contract. Finally, it examines ways of altering a company’s share capital.

Chapter

Cover Company Law

9. Classes of shares and variation of class rights  

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter focuses on the rights and liabilities of a shareholder which are the incident of the general nature of a share, as well as his particular rights and liabilities by virtue of owning a particular type or class of share. It first considers the legal nature of a shareholding and the different types of share capital and typical class rights of a shareholder, as well as the statutory procedure required of a company before it can effect a variation of shareholders’ class rights. Examples of classes of shares are then given, and preferential rights attached to preference shares are discussed. The chapter concludes by looking at European Union initiatives on shareholders’ rights.

Chapter

Cover Mayson, French, and Ryan on Company Law

6. Shares  

This chapter considers one way of becoming a shareholder of a company with a share capital: by taking shares from the company in exchange for a contribution of capital. The number and class of shares of the company that the member holds determines the extent of the member’s undertaking to contribute capital, and of entitlement to share in distributions and vote at meetings. Share allotment in exchange for a capital contribution is explained, and the need for public companies to have a minimum contributed capital is emphasised. The chapter also looks at possible remedies available to a person who has been induced to take an allotment of shares by a misrepresentation, including rescission of contract. Finally, it examines ways of altering a company’s share capital.

Chapter

Cover Company Law

23. Loan capital—secured creditors and company charges  

The majority of companies rely on commercial borrowing—loan capital—from high street banks and financial institutions. The lender will need security to cover the amount lent. This chapter discusses: company charges, fixed and floating charges, the approach to categorisation, registration of charges, and enforcement of a floating charge. The key concern for the creditor is to obtain the maximum security while the company is concerned to have the maximum freedom to act. The distinction between fixed and floating charges is considered and the characteristics of a floating charge are discussed with particular regard to charges on book debts. The chapter also considers the registration requirements with the registrar of companies.

Chapter

Cover Company Law

5. Raising capital: equity and its consequences  

Titles in the Core Text series take the reader straight to the heart of the subject, providing focused, concise, and reliable guides for students at all levels. This chapter focuses on raising equity from the general public and its consequences for the operation of the company. It begins by outlining the basics of raising equity before turning to the consequences of operating in a public market, with emphasis on areas such as takeovers and insider dealing. It then considers the distinction between public and private companies in terms of capital raising, how such companies are regulated, and how public companies differ from listed companies. It also discusses various methods of raising money from the public, the role of the Financial Conduct Authority and the London Stock Exchange in ensuring the proper functioning of the listed market in the UK, and the regulation of listed companies as well as takeovers and other public offers.