Fundamentals of Strategy
In the beginning, state that all sections are in reference to Corporations Act 2001 unless stated otherwise.
Company finance and fundraising
Equity (share) Finance
Issue of shares
Company has power to issue shares: s124(1)(a)
Management powers: s198A
Company can determine terms of issue and rights and restrictions: s254B
Issuing shares that have pre-emptive rights (for proprietary companies only): s254D
Classes of shares
Ordinary shares Preference shares
Right to vote at general meeting
No automatic entitlement to dividends
Claim surplus assets (remaining assets after deducting liability) when company winds-up Generally no voting rights
Cumulative entitlement to dividends
Priority of payment of dividends
Priority of repayment of capital on winding-up
No share of surplus assets on winding up
May be redeemable for cash/convertible to ordinary shares
Preference shares can only be issued if the right attached to preference shares are set out in constitution, or approved by special resolution (75%): s254A(2)
Dividends
Dividend can only be paid out of profits if :s254T(1) -> 1/3 Assets exceed liabilities -> 2/3 Fair and reasonable to shareholders as a whole -> 3/3 Does not affect the ability to pay creditors
Assets and liabilities should be calculated by the accounting standards at relevant time s254T(2)
If company insolvent, or payment would cause insolvency, cannot be paid. If do - breach of duty -> because directors have a duty to avoid insolvent trading: s588G(1A)
Dividend is declared at directors’ discretion (final decision): s254U -> a) amount, b) time, c) method (cash? Shares? etc)
Failure to pay can amount to oppression, fraud on minority: Sanford
Disclosure
- Proprietary companies must not engage in any activity that would require disclosure: s113(3)
- Disclosure for share issue is required for public companies to investors unless exception s708 applies: s706
Exceptions in s708 includes
Company finance and fundraising
Equity (share) Finance
Issue of shares
Company has power to issue shares: s124(1)(a)
Management powers: s198A
Company can determine terms of issue and rights and restrictions: s254B
Issuing shares that have pre-emptive rights (for proprietary companies only): s254D
Classes of shares
Ordinary shares Preference shares
Right to vote at general meeting
No automatic entitlement to dividends
Claim surplus assets (remaining assets after deducting liability) when company winds-up Generally no voting rights
Cumulative entitlement to dividends
Priority of payment of dividends
Priority of repayment of capital on winding-up
No share of surplus assets on winding up
May be redeemable for cash/convertible to ordinary shares
Preference shares can only be issued if the right attached to preference shares are set out in constitution, or approved by special resolution (75%): s254A(2)
Dividends
Dividend can only be paid out of profits if :s254T(1) -> 1/3 Assets exceed liabilities -> 2/3 Fair and reasonable to shareholders as a whole -> 3/3 Does not affect the ability to pay creditors
Assets and liabilities should be calculated by the accounting standards at relevant time s254T(2)
If company insolvent, or payment would cause insolvency, cannot be paid. If do - breach of duty -> because directors have a duty to avoid insolvent trading: s588G(1A)
Dividend is declared at directors’ discretion (final decision): s254U -> a) amount, b) time, c) method (cash? Shares? etc)
Failure to pay can amount to oppression, fraud on minority: Sanford
Disclosure
- Proprietary companies must not engage in any activity that would require disclosure: s113(3)
- Disclosure for share issue is required for public companies to investors unless exception s708 applies: s706
Exceptions in s708 includes