Categories of Shares
Define Preference Shares
Shares that provide priority for dividends and/or return on capital.
What is a share?
One of the units in which the propriety interest in a profit company is divided.
Define Solvency and Liquidity
Solvency: more assets than liabilities
Liquidity: enough cash flow to pay debts
Name two ways a company can raise finance.
1) debt (loans, debentures...)
2) equity (shares, retained income)
Define ordinary shares
Shares that usually have voting rights and receive dividends after preference shareholders.
What kind of right does owning a share confer upon you?
Personal Right
True or false: When performing the solvency and liquidity test before a distribution, one must consider the financial state of a company is BEFORE the distribution is issued.
False. 12 months following distribution
What is a debenture?
A type of debt instrument that can be secured or unsecured.
Define capitalization shares
Board of Directors can issue authorized shares of the company as capitalization shares on a pro rata basis to the shareholders of one or more classes of shares.
Define preemptive rights.
A company can, in an MOI, provide that if a company proposes to issue shares, a shareholder has the right, before any other person who is not a shareholder of that company, to be offered and, within a reasonable time to subscribe for, a percentage of the shares to be issued equal to the voting power of that shareholder's general voting rights before offer was made.
Define distribution.
Any direct or indirect transfer by a company of money or other property of the company (except shares) to one or more of its shareholders or beneficial holders of shares.
True or False: preference shareholders receive a dividend even if the BOD decide to retain the income of the company.
True
True or False: Preference shares typically enjoy more voting rights than other classes of shares.
False
True or false: Board of Directors need the consent of shareholders to increase authorized shares.
False
Give one instance when a company will provide financial assistance.
pursuant to an employee share scheme; pursuant to special resolution of the shareholders.
What type of property is a share?
Incorporeal moveable property
Which type of shares are also called "founders shares"?
Deferred Shares
Give an example of when directors require shareholder consent to issue shares.
Shares issued:
current or future director (6 months) or prescribed officer; person related to or connected with the company; nominee of a director/prescribed officer; voting power of shares to be issued will be more than 30% of the voting power of that class of shares already held before issue.
Explain the solvency and liquidity test
A) assets of the company, as fairly valued, equal or exceed the liabilities of the company.
B) it appears that the company will be able to pay its debts as they become due on the ordinary course of business for a period of 12 months after test is considered (distribution= 12 months after distribution)
Define/explain capital maintenance.
Share capital of a company had to be maintained or preserved in order to protect creditors and shareholders. No longer used in SA company law. Now use solvency and liquidity test.