Please enable JavaScript.
Coggle requires JavaScript to display documents.
Types of share and debt capital - Coggle Diagram
Types of share and debt capital
Authorised capital
The Act abolished the concept of authorised share capital
For companies incorporated under the previous Act the authorised share capital stated in their memorandum continues to a act as a ceiling on the number of shares that can be allowed and will be considered as a restriction in the Articles of the company
Alloted capital
Shares that the company has allotted
Shares are taken as allotted when a person acquires the unconditional right to be included in the company's register of members which is generally accepted to be once the contract of allotment is completed and acceptance of the application notified to the applicant
Includes shares taken by the subscribers on incorporation
Issued capital
Issued capital is the total capital that has been issued and taken up by the members of the company and is expressed by reference to the aggregate nominal value of the shares
A company can increase its issued share capital by allowing new shares
Paid up capital
Refers to the nominal amounts that have been paid up on the company's issued capital
Called up capital
Means the amount equal to the aggregate calls made on the shares (whether paid or not) together with any amounts paid up without being called and any share capital to be paid on a specific future date under the Articles
Equity capital
Means the issued capital of the company excluding any shares that have the right to participate in a dividend or return of capital only up to a specified amount
Changes to capital
The Act sets out the provisions relating to the alteration of share capital
CA2006 s.617 provides that a limited company may not alter its share capital except as provided in parts 17 and 18 of the Act
Under Parts 17 and 18 of the Act a company may
Increase its share capital by allowing new shares
Subdivide or consolidate all or any of its share capital
Reconvert stock into shares
Redeem shares
Purchase its own shares
Redominate its share capital
Cancel its shares
Reduce its share capital
Debt capital
Companies can also list debt capital including debt made up of loan notes, bonds or redeemable shares which are treated as debt
The directors have implied power or borrow money on behalf of the company under their general powers to manage the business of the company subject to the provisions of the At and the Articles of the company
Types of debenture
Debenture stock, bonds and any other securities of the company whether or not constituting a charge on the assets of the company
A document that creates a debt or acknowlegdes a debt
The more common method is to issue a series of debentures in registered form, the conditions relating to interest, redemption or security will be printed on the reverse of each debenture issued
Registered debentures may be transferable on stock transfer forms under the Stock Transfer Act1963 and such transfers are exempt form stamp duty
When a debenture or one of a series of debentures is transferred, the name and address of the new holder are endorsed on the debenture itself by the company
Public companies normally issue their debentures in the form of debenture stock secured on the company's assets and constituted by a trust deed between the company and a corporate trustee (eg insurance company/trust company)
Loan stock
Unsecured loan stock carried a higher risk for investors
To compensate for this, it is usual for such stocks to bear a higher rate of interest tha. if it were a secured debenture stock
Sometimes it is also necessary to offer options in the form of a right to convert the stock into equity shares of the company at certain dates in the future (i.e convertible loan stock)
The ratio is determined at the time of issue of the stock, alternatively, a right to subscribe for equity shares at a future date in a ratio and price determined at the time of issue is agreed.
Like a debenture, unsecured loan stock is constituted under a trust deed. The holder of the stock is entitled to be supplied with a copy of the trust deed at their request on payment of a fee
Convertible loan stock
Is a form of loan stock usually unsecured which includes provision for the stock to be converted into equity shares at ratios determined at the time of issue of the stock
There is a requirement for the company to give the stockholders notice of their right to exercise the conversion rights in every year in which the right exists
The CS or the company's register will be concerned with the proper procedure for dealing with applications from holders to exercise their conversion rights