Company Law: Raising Capital Shares - Definition and Nature of Shares
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Questions and Answers

What is the general priority rule regarding competing security interests?

  • The first creditor to register or perfect a security interest has priority. (correct)
  • The creditor with the longest relationship with the borrower has priority.
  • The creditor capable of lending the highest amount has priority.
  • The creditor with the lowest registration fee has priority.

    • When there are competing security interests, what determines the priority?

  • The total loan amount given by the creditor.
  • The date when the security interest was attached to the property. (correct)
  • The credit score of the borrower.
  • The size of the creditor's legal team determines the priority.

    • In the example provided, why does Creditor ABC have priority over Creditor DEF?

  • Creditor ABC had a personal relationship with the Borrower.
  • Creditor ABC had the higher loan amount.
  • Creditor DEF lacked registration.
  • Creditor ABC registered first. (correct)

    • What happens to the priority date if there are competing claims?

    <p>The priority date remains the same as the registration date.</p> Signup and view all the answers

    What does SIPPA stand for in the context of competing security interests?

    <p>Secured Interests Priority Protection Act</p> Signup and view all the answers

    What type of charge gives Creditor DEF priority in the provided scenario?

    <p>Floating charge</p> Signup and view all the answers

    Which type of shares typically entitles the holder to a proportion of the profits once a specified amount has been paid on ordinary shares?

    <p>Deferred Shares</p> Signup and view all the answers

    What type of shares allows a company to raise money while retaining control?

    <p>Non Voting Ordinary Shares</p> Signup and view all the answers

    Which type of shares have a fixed dividend that must be paid before any dividends can be paid to ordinary shareholders?

    <p>Preference Shares</p> Signup and view all the answers

    Which type of shares carry voting rights and entitlement to dividends that are declared based on a company's profits?

    <p>Ordinary Shares</p> Signup and view all the answers

    What is the purpose of redeemable shares, and what type of company can issue such shares?

    <p>Redeemable shares are shares that can be bought back by the company, and only a company limited by shares can issue them.</p> Signup and view all the answers

    Which type of shares is typically issued to a founder and is not commonly issued today?

    <p>Deferred Shares</p> Signup and view all the answers

    What kind of preference shares do not confer any right to a participation in the surplus profits of the company?

    <p>Non-participating preference shares</p> Signup and view all the answers

    What happens to the preferential dividend if a company does not make a profit in a given year?

    <p>The dividend is not paid out for that year</p> Signup and view all the answers

    What is the legal effect of issuing shares for a company limited by shares?

    <p>The company is required to have its authorized capital stated in its memorandum of association with a nominal value attached to those shares</p> Signup and view all the answers

    What type of preference shares confer a right to participate in surplus profits up to a fixed percentage?

    <p>Participating preference shares</p> Signup and view all the answers

    What is the legal status of a company's par value of shares?

    <p>The par value of shares is fixed by the company’s constitution</p> Signup and view all the answers

    What happens if a company does not declare its shares to be non-cumulative preference shares?

    <p>The preferential dividend is to be paid out of the yearly profits or out of the net profits of each year</p> Signup and view all the answers

    What was the main issue in the case of Re Pacaya Rubber and Produce Co Ltd?

    <p>The report from the expert on the spot was false</p> Signup and view all the answers

    What happens if the allottee attends and votes at a general meeting after discovering the misrepresentation?

    <p>The allottee loses the right to rescission</p> Signup and view all the answers

    What happens if the company goes into liquidation after a misrepresentation?

    <p>The right to rescission is lost</p> Signup and view all the answers

    What is the main condition for rescission of a contract due to misrepresentation?

    <p>The misrepresentation was sufficiently material</p> Signup and view all the answers

    What is an alternative to rescission of contract in cases of misrepresentation?

    <p>Damages for fraud</p> Signup and view all the answers

    What is the requirement for the company in cases of misrepresentation?

    <p>To disassociate itself from the report</p> Signup and view all the answers

    What makes a prospectus fraudulent?

    <p>If it contains false statements or has true statements with omissions that give a false impression</p> Signup and view all the answers

    What is the measure of damages for fraud in a prospectus?

    <p>The difference between the actual value of shares and the sum paid for them</p> Signup and view all the answers

    Who is liable to pay compensation to subscribers for losses incurred due to a misleading prospectus?

    <p>Directors, promoters, and persons who authorized the prospectus</p> Signup and view all the answers

    What is the maximum imprisonment term for issuing a prospectus with an untrue statement?

    <p>2 years</p> Signup and view all the answers

    What is the maximum fine for issuing a prospectus with an untrue statement upon summary conviction?

    <p>$100,000</p> Signup and view all the answers

    What are the two types of sanctions that can be invoked for non-compliance with prospectus requirements?

    <p>Criminal and civil sanctions</p> Signup and view all the answers

    Study Notes

    Definition and Nature of Shares

    • A share is an interest in a company measured by a sum of money, representing liability and interest in the company.
    • A share is a form of intangible property, classified as a chose in action, carrying rights and obligations, and is transferable.

    Types of Shares

    • Ordinary Shares: most common type, dividends are not fixed, and holders have the right to vote at all meetings of the company.
    • Non-Voting Ordinary Shares: enables the company to raise money while retaining control, and must be designated as such.
    • Deferred Shares: allotted to the company's founder, with the holder entitled to a proportion of profits if dividends on ordinary shares have been paid up to a specified amount.
    • Redeemable Shares: a company may issue shares that are redeemable, if authorized by its articles.
    • Non-Cumulative Preference Shares: preferential dividend is paid out of yearly profits, and does not accumulate if the company does not make a profit.
    • Non-Participating Preference Shares: do not confer a right to participate in surplus profits after payment of a specified rate of dividend on ordinary shares.
    • Participating Preference Shares: confer a right to participate in surplus profits up to a fixed percentage.
    • A company with a share capital must state its authorized capital in its memorandum of association with a nominal value attached to the shares.
    • The nominal or par value of shares was often unrealistic and an artificial figure, but is now not required.

    Misrepresentation in Prospectus

    • A prospectus containing extracts from a false report is considered a misrepresentation, and the company is liable for damages.
    • The right to rescission is lost if the allottee:
      • Does an act that shows they want to retain the shares.
      • Fails to act within a reasonable time of discovering the truth.
      • Restitution is impossible.
      • The company goes into liquidation.

    Damages for Fraud

    • An action for damages may be brought against the company or individuals responsible if the misrepresentation is negligent or fraudulent.
    • The measure of damages for fraud is the difference between the actual value of the shares at the time of allotment and the sum paid for them.

    Sanctions for Non-Compliance with Prospectus Requirements

    • Civil Liability: directors, promoters, and persons who authorized the issue of the prospectus are liable for compensation to persons who subscribed for shares on the faith of the prospectus.
    • Criminal Liability: persons who authorized the issue of a prospectus containing an untrue statement are liable to imprisonment or a fine.

    Priority of Competing Security Interests

    • General priority rules: the first creditor to register or perfect a security interest has priority over the claims of creditors who register or perfect later.
    • Exceptions for special circumstances and special types of property.

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    Description

    Explore the definition and nature of shares in the context of raising capital in a company with this quiz. Test your knowledge on the interests, liabilities, and covenants associated with shares.

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