Equity Finance – Issue & Allotment of shares-
Into-
What is capital?-
Generally – it refers to funds available to run the business of a company
Finance to run the business
In company law - ‘Share Capital’
Relates to money raised by the issue of shares – contributed by the investors of the company
-
Why does a company need funds?-
Funds needed to get the business started, pay rent etc
Funds needed to keep company going - ‘working capital’
Funds needed for expansion & growth
-
How does a company fund its business?-
Various ways:
Issuing shares – equity finance
Borrowing – debt finance
Issuing a ‘hybrid’ investment – characteristics of equity & debt finance
o Eg: a convertible bond or a preference share
Retaining profits for use in business (rather than paying its shareholders)
-
Equity finance-
A share is often referred to as a ‘bundle of rights’
By investing in the share capital of any company, the investor becomes a part owner of the
company and will often have voting rights in shareholder meetings
In private companies, most investors make long term investments - & so usually only get their
investment back on a sale of their stake/ the company itself / on a floatation / winding up of company
(provided suff funds are available)
Incentive for investing = receipt of income (by way of dividend) and capital gain ( by way of growth in
value of the company & hence the shares)
Different classes of shares may carry different rights and entitlements
, All rights and entitlements in relation to shares of all classes are set out in the articles of
association.
-
Equity finance: Effect on balance sheet-
As you can see, the entry for the issue of the shares is as follows:
i) increase share capital to show the nominal value of the shares issued; and
ii) increase the cash (current assets) to show the cash received for the shares.
-
Debt finance-
Money borrowed to help fund the company – can be done in many ways
-
Debt or Equity?
Consider more after reading debt in chapter 6
--
Share capital structure-
Nominal or par value-
S542(1) CA – shares in a ltd company having share capital must have a fixed nominal value (minimum
subscription price)
S542(2) CA – any allotment of shares that does not have a fixed nominal value is void
Represents a unit of ownership, rather than value
, S580 – shares may not be allotted at a discount. But may be for more than nominal value - ‘premium’
-
Issued, allotted, paid up & called-up shares-
Amount of shares in issue at any one time = Issued share capital (ISC)
Companies ISC is made up of:
Shares purchased by the first members of the company – subscriber shares
Further shares issued after the company was incorporated
o New shares can be issued at any time provided that the correct procedures are followed
‘issue’ - no statutory definition
but it has been held that shares are only issued and form part of a company’s issued share
capital once the shareholder has actually been registered as such in the company’s register of
members, and his title has become complete
o s.112(2) CA ‘06 confirms that full legal title to shares is only achieved once a person’s
name is entered in the company’s register of members
Allotment – s558
Shares are allotted when a person acquires the unconditional right to be included in the
company’s register of members
The amount of nominal capital paid is known as the ‘paid-up share capital’.
The amount outstanding can be demanded by the company at any time.
Once demanded, the payment has been ‘called’.- s547: the aggregate amount of the calls made
on a company’s shares & the existing paid up share capital
-
Difference between allotting and transferring shares-
Allotment – is a contract between the company and a new/existing member; under which the company
agrees to issue new shares in return for the purchaser paying the subscription price
A TRANSFER – is a contract to sell existing shares in the company between and existing shareholder and
the purchaser
Company is not party to the contract
o with the exception of a sale out of treasury of treasury shares –
Into-
What is capital?-
Generally – it refers to funds available to run the business of a company
Finance to run the business
In company law - ‘Share Capital’
Relates to money raised by the issue of shares – contributed by the investors of the company
-
Why does a company need funds?-
Funds needed to get the business started, pay rent etc
Funds needed to keep company going - ‘working capital’
Funds needed for expansion & growth
-
How does a company fund its business?-
Various ways:
Issuing shares – equity finance
Borrowing – debt finance
Issuing a ‘hybrid’ investment – characteristics of equity & debt finance
o Eg: a convertible bond or a preference share
Retaining profits for use in business (rather than paying its shareholders)
-
Equity finance-
A share is often referred to as a ‘bundle of rights’
By investing in the share capital of any company, the investor becomes a part owner of the
company and will often have voting rights in shareholder meetings
In private companies, most investors make long term investments - & so usually only get their
investment back on a sale of their stake/ the company itself / on a floatation / winding up of company
(provided suff funds are available)
Incentive for investing = receipt of income (by way of dividend) and capital gain ( by way of growth in
value of the company & hence the shares)
Different classes of shares may carry different rights and entitlements
, All rights and entitlements in relation to shares of all classes are set out in the articles of
association.
-
Equity finance: Effect on balance sheet-
As you can see, the entry for the issue of the shares is as follows:
i) increase share capital to show the nominal value of the shares issued; and
ii) increase the cash (current assets) to show the cash received for the shares.
-
Debt finance-
Money borrowed to help fund the company – can be done in many ways
-
Debt or Equity?
Consider more after reading debt in chapter 6
--
Share capital structure-
Nominal or par value-
S542(1) CA – shares in a ltd company having share capital must have a fixed nominal value (minimum
subscription price)
S542(2) CA – any allotment of shares that does not have a fixed nominal value is void
Represents a unit of ownership, rather than value
, S580 – shares may not be allotted at a discount. But may be for more than nominal value - ‘premium’
-
Issued, allotted, paid up & called-up shares-
Amount of shares in issue at any one time = Issued share capital (ISC)
Companies ISC is made up of:
Shares purchased by the first members of the company – subscriber shares
Further shares issued after the company was incorporated
o New shares can be issued at any time provided that the correct procedures are followed
‘issue’ - no statutory definition
but it has been held that shares are only issued and form part of a company’s issued share
capital once the shareholder has actually been registered as such in the company’s register of
members, and his title has become complete
o s.112(2) CA ‘06 confirms that full legal title to shares is only achieved once a person’s
name is entered in the company’s register of members
Allotment – s558
Shares are allotted when a person acquires the unconditional right to be included in the
company’s register of members
The amount of nominal capital paid is known as the ‘paid-up share capital’.
The amount outstanding can be demanded by the company at any time.
Once demanded, the payment has been ‘called’.- s547: the aggregate amount of the calls made
on a company’s shares & the existing paid up share capital
-
Difference between allotting and transferring shares-
Allotment – is a contract between the company and a new/existing member; under which the company
agrees to issue new shares in return for the purchaser paying the subscription price
A TRANSFER – is a contract to sell existing shares in the company between and existing shareholder and
the purchaser
Company is not party to the contract
o with the exception of a sale out of treasury of treasury shares –
