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?

The priority date remains the same as the registration date. Signup and view all the answers

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

Secured Interests Priority Protection Act Signup and view all the answers

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

Floating charge 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?

Deferred Shares Signup and view all the answers

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

Non Voting Ordinary Shares 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?

Preference Shares 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?

Ordinary Shares Signup and view all the answers

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

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

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

Deferred Shares 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?

Non-participating preference shares Signup and view all the answers

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

The dividend is not paid out for that year Signup and view all the answers

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

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

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

Participating preference shares Signup and view all the answers

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

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

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

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

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

The report from the expert on the spot was false Signup and view all the answers

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

The allottee loses the right to rescission Signup and view all the answers

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

The right to rescission is lost Signup and view all the answers

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

The misrepresentation was sufficiently material Signup and view all the answers

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

Damages for fraud Signup and view all the answers

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

To disassociate itself from the report Signup and view all the answers

What makes a prospectus fraudulent?

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

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

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

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

Directors, promoters, and persons who authorized the prospectus Signup and view all the answers

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

2 years Signup and view all the answers

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

$100,000 Signup and view all the answers

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

Criminal and civil sanctions 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.

Legal Effect of Issuing Shares

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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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.

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

Podcast Beta

Questions and Answers

What is the general priority rule regarding competing security interests?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What makes a prospectus fraudulent?

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

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

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

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

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

Study Notes

Definition and Nature of Shares

Types of Shares

Legal Effect of Issuing Shares

Misrepresentation in Prospectus

Damages for Fraud

Sanctions for Non-Compliance with Prospectus Requirements

Priority of Competing Security Interests

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