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WS7- equity finance - Coggle Diagram

- - - - Share holders have rights of first refudal on issue of new shares in most circumstances (S561). This only applies to equity securities.
        
        Usually there is no pre-emption rights of transfer of existing shares though this can be provided for in articles or shareholder agreement esp in private companies
      - S560(1) defines equity securities as (a) ordinary shares in the company or (b) rights to subscribe for, or to convert securities into ordinary shares in the company; ordinary shares means shares other than shares that as respect sdividends and capital carry a right to participate only up to a specified amount in distribution
        
        Meaning: it applies to issuing ordinary shares and ordinary shares is defined broadly. Pre-emption rights only do not apply to preference shares that have capped participating rights as to both dividends and capital, bonus shares- issued under employee share scheme, issued for non-cash consideration S564
      - company may exclude right of pre-emption by specific provision in the articles (S567-568), or disapplied by special resolution of the shareholders, when: by directors of a private limited company with only one class of shares, directors acting under a general authority to issue shares (most common) or shareholders pass special resolution relating to particular share allotment only- S569-571
  - - - (2) if a company purports to act in contravention of this section (a) an offence is committed by (i) the company (ii) every officer of the company in default (b) purported acquisition is void. S659 sets out series of exceptions to the rule
- - - - Directors will be liable to personally repay dividends. Shareholders may be liable also
        
        Bairstow v Queens Moat Houses plc- directors ordered to repay the full amount of dividends- not just the excess amount that was done unlawful and out of not distributable reserves
        
        S847(1) and (2) provide if shareholders know or has reasonable grounds for believing distribution to have been unlawful, they are liable to repay it to company
        
        Its a Wrap (UK) LTd v Gula- shareholders liable if they knew or ought to have reasonably to have known of the facts which mean the distribution contravened the requirements of the ACt
- - - - solvency statement: Solvency statement must be made not more than 15 days before date on which special resolution is passed (S642(1)). Must be signed by all directors. Solvency statement must confirm: - There is no ground on which the company could be found unable to pay its debts (S643(1)(a) and - Company will be able to pay its debts for 12 months from the date of solvency statement (S643(1)(b)(ii)
- - - - redemption is where they are issued as redeemable shares in the first place, for purchade of shares the parties will need to agree the terms of the purchase at the time the company seeks to make the purchase. Redeemable shares do not need contract for the redemption as they are pre-determined at time of issue. For redeemable shares to be issued, must be at least one other class of share in issue- S684(4). Shares may not be redeemed unless fully paid
      - Redemption usually out of distributable profits but private companies can redeem out of capital provided they comply with. accounts must be no more than three months old, Directors statement, auditor’s report and special resolution also required- S687(1) Creditors must be notified and have period to object
    - - Similar to redemption but for non-redeemable shares.Company may purchase own shares suject to limitations in articles. Company must draw up a contract with the shareholder seeling the shares which needs to be approved by ordinary resolution of shareholders. Purchase may be funded by distributable profits or capital (private companies only).
        
        additional requirements for purchase of own shares out of capital: accounts must be no more than three months' old, directors' stateemnt, auditors' report and special resolution of shareholders are required- S692(1)(a). creditors must be notifed and have period to object
      - financial assistance for purchase of own shares
        
        gift, loan, indemnity, security as per S677 CA 2006
        
        prohibitions on public companies:
        
        Both public companies and their private limited subsidiaries are prohibited from providing ficnnaicla assistance for the purchase of shares in the public company- S678
        
        Public companies are prohibited from providing financial assistance for the purchasr of shares in their private limited holding companies- S679
        
        exceptions, where financial assistance can be provided:
        
        unconditional exceptions in S681: for procedures authorised in other sections like redemption of shares or reduction of capital
        
        conditional exceptions in S682: if company has net assets and either those assets are not reduced by giving financial assistance or to the extent that those assets are reduced the assistance is provided out of distributable profits
        
        where financial assistance not prohibited: principal purpose of assistance is not to give it ofor the purpose of an acquisition of shares, or where this assistancr is iincidental to some other larger purpose of the company AND in either case, where it is given in good faith and in the interests of the company (difficult to rely on and court must consider it to be incidental to some larger purpose) Brady v Brady
        
        Conseuqnce of unlaeful assistance: transaction held void and company/any officer in default will be liable to a fine/up to two years in prison