Business Law Lecture 8 CORPORATE FINANCE DEBENTURES

This Lecture Covers FINANCE OF A COMPANY

What is a company’s capital? A company’s CAPITAL comprises:- – Share capital: money raised from shareholders – Loan capital: money raised from lenders

SHARES IN A COMPANY What is a share? – A BUNDLE OF RIGHTS AND OBLIGATIONS – THREE MAIN RIGHTS TO VOTE AT GENERAL MEETINGS TO RECEIVE DIVIDENDS RETURN OF CAPITAL

Types of Shares – ORDINARY SHARES THE GREATEST PROPORTION OF THE COMPANY’S CAPITAL; USUALLY A RIGHT TO VOTE USUALLY RECEIVE THE GREATEST SHARE OF THE COMPANY’S PROFITS AFTER ANY PREFERENCE SHAREHOLDERS – PREFERENCE SHARES RIGHT TO A PREFERRED FIXED DIVIDEND MAY CARRY VOTING RIGHTS

Disposing Of Shares If a shareholder no longer wants his shares what can he do? sell them or give them away BUT check the company’s constitution THERE MAYBE RESTRICTIONS IN THE ARTICLES REFUSAL BY DIRECTORS WHERE SHARES REMAIN UNPAID PRE-EMPTION CLAUSE: SHARES MUST BE OFFERED TO EXISTING SHAREHOLDERS FIRST

Loan Capital Debenture and charges Debenture = debt owed by a company to a lender eg bank, usually secured by a charge over the company’s assets

TYPES OF CHARGE Fixed charge Security over specific assets belonging to the company Assets cannot be sold or disposed of without the company obtaining the consent of the lender – the bank. Example: land, factory, warehouse, company cars. Floating charge Security over a class of assets that are changing in nature ie they fluctuate Assets can be sold or disposed of by the company in its usual course of business without the need for consent from the lender Example: stock, finished articles, raw materials

Crystallisation Once a floating charge crystallises, it becomes fixed on to all the assets in that class of asset. Examples of crystallisation: liquidation, administration, receivership, default on loan payment

Book Debts Book debts can be subject to a fixed charge or a floating charge – Restrictions mean the company cannot sell/spend the book debt without the bank’s consent Whether fixed or floating depends on the characteristics of the charge If restrictions not total = floating

Registering Charges S 860 CA 2006: defines relevant charges – eg charges on land, intellectual property, floating charges S 860 CA 2006: relevant charges must be registered at Companies House – name of parties, description of property, amount secured S 876 CA 2006: a register of charges must be kept by the company S 874 CA 2006: a failure to register a charge within 21 days of its creation renders the charge void; any money secured by the void charge becomes immediately payable S 873 CA 2006: a court has the power to permit late registration or inaccurate particulars if ‘just and expedient’

Priority of creditors In the event of a winding up of a company, this is the order of the company’s creditors: 1. Fixed charge holders 2. Liquidation expenses 3. Preferential creditors - employees only (max £800) 4. Floating charge holders 5. Unsecured creditors 6. Deferred creditors (shareholders with unpaid dividends)

Surplus Assets Surplus of assets returned to members in accordance with any class rights as set out in the articles