What is the difference between cumulative preference shares and non-cumulative preference shares?

The difference is what happens if the payment of a dividend is missed. If it is a non-cumulative preference share, the dividend is lost forever and never paid. If it is a cumulative preference share, the dividend may be paid later, if and when the funds to do so are available. It depends on the terms of issue but the rights will probably be cumulative unless the contrary is stated.

What is meant by the term 'partly paid shares'?

Most shares are issued fully paid. This means that the successful applicants pay the full amount when the shares are issued. In the case of partly paid shares only part of the money is paid when the shares are issued. The remainder of the money is called up at a later date.

Sometimes calls are left to the discretion of the directors and may never be made, and sometimes instalments are at intervals specified in the terms of issue. Many of the so-called privatisation issues some years ago were done in this way. British Telecom PLC was an example. A valid call must be paid even if the shares are worthless. In the event of insolvency the uncalled capital must be called up and used to pay the debts.

Can I buy shares using a nominee name?

Yes you can and it is very common. There are many possible reasons for doing so. One may be a wish for secrecy or privacy. Another may be administrative convenience. It is extremely common and perhaps even required for shares held by stockbrokers, investment managers, etc. There has been some unease that requirements for beneficial owners to use nominees increases the isolation of shareholders from companies, and creates problems with such matters as voting and the flow of information. To some extent this is inevitable but the Act contains measures to assist indirect investors.

English companies are not allowed to enter any notice of trust on to the register of members, even if they have been notified of the information. The position is different under Scottish law where such notice may be entered on the register if the articles permit. A company should deal exclusively with the body or person named in its register, even if the word 'nominee' appears in its name and even if the company knows or believes that it is acting in the capacity of a nominee.

What is meant by the term 'pre-emption rights'?

There is a general requirement under the Act that new shares to be issued for cash must be offered to existing shareholders in proportion to their existing holdings. Only shares not accepted by the existing shareholders may be allotted to non-shareholders. This is what is meant by pre-emption. The principle and details of this are covered by Sections 561 to 577 of the Act. Pre-emption rights apply to shares, securities that may be converted into shares and options to acquire shares. Pre-emption rights do not apply to:

Subscribers' and bonus shares.

Shares allotted under an employees' share scheme.

Shares with limited rights as to dividends and capital participation.

Shares allotted, wholly or partially, for non-cash consideration.

The point of pre-emption rights is that they stop a shareholder's rights being watered down without his consent. For example, a person holding 26 per cent of the shares is able to block a special resolution. If enough new shares are issued and if the shareholder is not able to buy a pro-rata proportion, this right will be lost.

Are there some circumstances in which pre-emption rights do not apply?

There are the exceptions listed in the answer to the previous question and, in addition, the articles of a private company may override statutory provisions concerning pre-emption rights. A private company's articles may exclude pre-emption rights, or may stipulate that they operate in detail in a way different from the Act's requirements. In both public and private companies pre-emption rights may be modified or abolished if directors have been given a general authorisation to allot shares. Such authorisation may have been given by the articles or by a special resolution of the members.

There are certain requirements of listed companies relating to preemption rights.

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