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Questions and Answers
What is share capital?
Share capital refers to the total value of all issued stocks, which represents the portion of a business owned by its shareholders.
Explain a call in arrear.
A call in arrear occurs when a corporation demands immediate payment from holders of convertible bonds who have failed to make scheduled interest payments over time.
Define fortitude in the context of issuing shares.
Fortitude is not directly related to issuing shares in the given text. It's not a concept discussed in the text provided.
What is a call in advance?
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Explain collateral security in the context of issuing shares.
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How can companies raise funds through issuing shares?
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What is the difference between call in arrear and call in advance?
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How does fortitude (fortuity) play a role in corporate actions involving share issuances?
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What is collateral security and how is it related to the process of issuing shares?
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What are covered warrants, certificates, or rights in the context of issuing shares?
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Why is it important to understand the relationships between terms like call in arrear, call in advance, fortitude, and collateral security when issuing shares?
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How can forecasting future demand for products involve elements of fortitude?
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Study Notes
Issuing Shares: Understanding Share Capital and Related Concepts
When companies raise funds through selling ownership stakes to investors, they're issuing shares of their stock—an integral part of share capital. As you delve into this financial terrain, it helps to familiarize yourself with additional concepts like calls in arrears, calls in advance, fortitude, and collateral security. Let's explore each concept one by one.
Share Capital
Share capital refers to the total value of all issued stocks, which represents the portion of a business owned by its shareholders. This includes both common and preferred stock. When a company issues new shares, it increases its share capital while raising money to finance growth. Companies can issue these shares privately via private placements, or publicly through initial public offerings (IPOs).
Call In Arrear
This term relates to when a corporation demands immediate payment from holders of convertible bonds who have failed to make scheduled interest payments over time. If bondholders don’t pay the missed installments promptly upon receiving notice of the call in arrear, the company may choose to declare the entire outstanding principal due immediately.
Call In Advance
Conversely, a call in advance involves demanding full repayment of a debt before its contractually set maturity date. A company might do this if it needs cash quickly, or it believes the investment's price will decline after maturity. Holders of such securities must decide whether to sell them in the open market or return them to the issuer when called in advance.
Fortitute
Fortuity (also spelled fortitude) is not directly related to share capital but does play a role in corporate actions involving share issuances. It describes uncertainties regarding potential events or circumstances, including those affecting the financial position or performance of a business. For instance, forecasting future demand for products could involve considering possible changes in consumer behavior, economic trends, or competitor moves, all of which reflect elements of fortuity.
Collateral Security
Collateral security, often referred to simply as collateral, pertains to property or assets pledged to secure a loan or other form of borrowing. In some cases, corporations may issue shares using existing collateral, sometimes called covered warrants, certificates, or rights. These instruments give buyers the option to purchase more shares within a specified period, usually at a predetermined price, offering investors exposure to the underlying asset without actually owning it outright until exercising the right.
Understanding these terms and their relationships to the process of issuing shares lays the groundwork for better grasping how equity financing works. With these fundamentals under your belt, you'll be well-positioned to follow company developments and stay abreast of current events as firms grow and evolve.
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Description
Test your knowledge on share capital, calls in arrears, calls in advance, fortitude, and collateral security with this quiz. Explore the basics of share capital, understand the implications of calls in arrears and calls in advance, and learn about fortuity and collateral security in the context of issuing shares and equity financing.
