Legal Challenges for Capital Raising without Contribution of Funds
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Questions and Answers

What happens to a shareholder's stake if they do not subscribe to additional shares issued by a company?

  • It decreases (correct)
  • It doubles
  • It increases
  • It remains the same
  • What is the primary aim of a capital raise for a company?

  • Welcoming new shareholders (correct)
  • Lowering the company's credibility
  • Paying off existing debt
  • Decreasing the share capital
  • When equity becomes less than half of the share capital, a company may raise capital to:

  • Reduce the number of shareholders
  • Decrease its overall market value
  • Avoid dissolution (correct)
  • Maximize shareholder dividends
  • What is one way for existing shareholders to maintain their percentage of participation in a company when new shares are issued?

    <p>Increasing the nominal value of existing shares</p> Signup and view all the answers

    How does increasing the nominal value of existing shares affect the share capital of a company?

    <p>Increases the share capital</p> Signup and view all the answers

    How can companies raise capital by increasing the nominal value of existing shares?

    <p>Issuing bonus shares</p> Signup and view all the answers

    What is a way for partners to provide liquidity to a company during a capital raise?

    <p>Cash contribution</p> Signup and view all the answers

    In a capital raise involving the issuance of new shares, who may subscribe to the newly issued shares?

    <p>Existing shareholders or third parties</p> Signup and view all the answers

    What is a method of increasing the capital of a company where tangible and intangible goods are provided by shareholders?

    <p>Contribution in kind</p> Signup and view all the answers

    In the context of a company raising capital, what does the term 'dilution' refer to?

    <p>Alteration in the ownership distribution due to new shareholders</p> Signup and view all the answers

    How can existing shareholders be given priority for purchasing new shares during a capital raise?

    <p>Pre-emptive rights</p> Signup and view all the answers

    If a company's articles of association require it, new shareholders in a capital raise may need approval from:

    <p>Existing shareholders</p> Signup and view all the answers

    Who is a director in a corporation?

    <p>A person elected by the shareholders to serve on a board overseeing management</p> Signup and view all the answers

    What is the role of officers in a corporation?

    <p>Carrying out day-to-day decisions per the board's policies</p> Signup and view all the answers

    What is the main function of a board of directors (BOD) in a corporation?

    <p>Managing the corporation's business and affairs and making major decisions</p> Signup and view all the answers

    Where do officers derive their powers from in a corporation?

    <p>Board of Directors (BOD)</p> Signup and view all the answers

    What distinguishes directors from officers in a corporation?

    <p>Directors are elected by shareholders, while officers are appointed by directors</p> Signup and view all the answers

    Who is responsible for making major business and policy decisions in a corporation?

    <p>Board of Directors (BOD)</p> Signup and view all the answers

    What majority is typically required for passing a special resolution to decide on capital raising?

    <p>75%</p> Signup and view all the answers

    In what scenario does a capital increase require a unanimous decision?

    <p>Increasing the nominal value of the shares</p> Signup and view all the answers

    What information should be stated in a special resolution for capital raising?

    <p>The deadline for subscribing to shares</p> Signup and view all the answers

    Before a capital increase in cash, what condition must be met regarding the initial share capital?

    <p>It must be fully paid up</p> Signup and view all the answers

    What is one of the formalities required for a company to raise capital?

    <p>Publishing a legal announcement</p> Signup and view all the answers

    Besides passing a special resolution, what other step is necessary for capital raising?

    <p>Amending the articles of association</p> Signup and view all the answers

    What are the 3 standards applied to directors/officers to determine compliance with the Business Judgment Rule?

    <p>Exercise of due care, action in good faith, reasonable belief in personal interest</p> Signup and view all the answers

    In Smith v. Van Gorkom case, why did the court find the director grossly negligent?

    <p>Because the director rapidly approved the merger without substantial inquiry</p> Signup and view all the answers

    What is a limitation on the powers of directors mentioned in the text?

    <p>Taking actions outside the corporation's purposes</p> Signup and view all the answers

    What action by directors is protected by the Business Judgment Rule if there is a conscious decision involved?

    <p>Inaction</p> Signup and view all the answers

    Which of the following is NOT one of the 3 standards applied to directors/officers to determine compliance with the Business Judgment Rule?

    <p>Transparency in decision-making</p> Signup and view all the answers

    What must directors do to comply with the standard of care under the Business Judgment Rule?

    <p>Exercise due care and make informed decisions</p> Signup and view all the answers

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