Week 8: Share Capital and Fundraising in Corporate Law

What are shares classified as under section 1070A?

Shares are classified as personal property.

What legal term describes shares due to their intangible nature?

Shares are referred to as a 'chose in action'.

What rights do ordinary shareholders have?

Ordinary shareholders have the right to vote, receive dividends, and participate in distribution of surplus assets if the company is wound up.

What are preference shares?

Preference shares have no voting rights but offer increased dividends.

Why might a company have different classes of shares?

To confine corporate control in the hands of particular persons, raise finance, and minimize tax.

What does it mean for shares to be fully paid or partly paid?

Fully paid shares have no outstanding debt, while partly paid shares have a debt owed to the company.

What is the general definition of securities under the Corporations Act?

Securities include shares, debentures (loan made to company), and options - right to sell (put) or buy (call) shares at set price.

What is a call option?

A call option is the right to buy shares at a set price in the future.

What is a put option?

A put option is the right to sell shares at a set price, used to manage risk.

What must be followed to vary or cancel shareholding according to section 246B(2)?

A special resolution passed by the company and a special resolution from the affected class or written consent with at least 75% of the votes of the affected class.

What remedies are available for shareholders if class provisions are not complied with?

Remedies include statutory injunctions, applications to set aside, and oppression remedies.

What does share capital maintenance ensure?

It ensures that money paid for shares is not given away except through lawful processes.

What is the modern approach to share capital rules regarding flexibility?

The approach emphasizes solvency while allowing flexibility for companies.

What criteria must be met for a company to reduce its share capital under section 256B?

The reduction must be fair to shareholders, not materially prejudice creditors, and be approved by shareholders.

What personal liability do directors face under section 588G for capital reduction?

Directors may be personally liable to compensate if the company becomes insolvent due to capital reduction.

What penalties can directors face for a dishonest breach of section 256B?

Directors risk fines or imprisonment for up to five years.

What are some forms of financial assistance under s260A(2)?

Forms include making a loan, making a gift, giving security over the company's assets, or releasing a debt owed to the company.

What is the consequence of non-compliance with s260A for capital reduction?

Non-compliance does not affect the validity of the capital reduction, nor does it constitute an offence, but individuals involved may face civil penalties.

What is the purpose of share buy-backs?

To return surplus to shareholders, improve earnings per share, restructure equity and debt, or reissue shares as incentives.

What is the '10/12 limit' in relation to buy-backs?

A company cannot buy back more than 10% of its shares within 12 months.

What must a company do before initiating a buy-back?

It must advise ASIC of its intention to buy back shares, unless it is a minimum holding buy-back.

What happens if a buy-back contravenes provisions under s259F(2)?

The validity of the buy-back is not affected, but individuals involved may face civil penalties.

What are the potential penalties for directors if a buy-back results in insolvency?

Directors may be personally liable to compensate the company under insolvent trading provisions.

What is the definition of securities under s700?

Securities include shares, debentures, legal or equitable interests in shares or debentures, and options to acquire shares or debentures.

What are the types of disclosure documents under Chapter 6D?

Types include a prospectus, short form prospectus, offer information statement, and profile statement.

What exemptions exist under s708 for disclosure?

Exemptions include small scale personal offers, sophisticated investors, professional investors, and offers to existing security holders.

What is the role of ASIC in relation to buy-backs?

ASIC may apply to court for disqualification orders, compensation orders, and pecuniary penalties in cases of breach.

What is a selective buy-back scheme?

It is a buy-back scheme that requires a special resolution of shareholders or all ordinary shareholders.

What is a statutory injunction under s1324?

It is a legal remedy that may be available in cases of breach of regulations.

What is the consequence of dishonesty in relation to breaches of buy-back provisions?

It may result in fines, imprisonment, or both.

What is the purpose of a prospectus?

To provide potential investors with detailed information about an investment opportunity.

What is a short form prospectus?

A simplified version of a prospectus that provides essential information for investors.