Share Capital and Company Financing

Summary: This document provides a brief overview of the key concepts related to the capitalization of a company, focusing on share capital and its various components. It defines key terms such as authorized share capital, issued share capital, ordinary shares, and preference shares, and outlines the concept of pre-emption rights in the context of share issuance in British companies.

Key Themes and Ideas:

• Capitalization Definition: The document establishes that "capitalisation refers to the act of providing capital for a company through the issuance of various securities." This highlights the core function of capitalization as the process of raising funds for the company's operations.
• Authorized vs. Issued Share Capital: A crucial distinction is made between authorized and issued share capital. "The authorised share capital, the maximum amount of share capital that a company can issue, is stated in the memorandum of association." The document clarifies that a company may choose not to issue all of its authorized capital immediately. "Issued share capital, as opposed to authorised share capital, refers to shares actually held by shareholders."
• Types of Shares: The excerpt details the two primary classes of shares: ordinary and preference shares.
• Ordinary Shares: "The ordinary shareholder has voting rights, but the payment of dividends is dependent upon the performance of the company."
• Preference Shares: "Preference shareholders, on the other hand, receive a fixed dividend irrespective of performance (provided the payment of dividends is legally permitted) before the payment of any dividend to ordinary shareholders, but preference shareholders normally have no voting rights."
• Share Subdivisions and Consolidation: The document touches upon share subdivisions and consolidations, explaining they are changes to the value of shares. "There is also the possibility of share subdivisions, whereby, for example, one ten-pound share is split into ten one-pound shares, usually in order to increase marketability. The reverse process is, appropriately enough, termed share consolidation."
• Pre-emption Rights: The concept of pre-emption rights is introduced. "Shares in British companies are subject to pre-emption rights, whereby the company is required to offer newly issued shares first to its existing shareholders, who have the right of 'first refusal'." This right can be waived by shareholders.
• Minimum Share Capital (UK): The excerpt notes a legal requirement in Great Britain: "The minimum share capital for a public limited company in Great Britain is £50,000."

Important Concepts and Definitions (based on Matching Exercise):

• Authorised Share Capital: "Maximum number of shares that a company can issue, as specified in the firm's memorandum of association."
• Dividend: "Part of a company's profits paid to shareholders."
• Issued Share Capital: "Proportion of authorised capital which has been issued to shareholders in the form of shares."
• Ordinary Share: "Type of share in a company that entitles the shareholder to voting rights and dividends."
• Pre-emption Rights: "Entitlement entailing that, when new shares are issued, these must first be offered to existing shareholders in proportion to their existing holdings."
• Preference Share: "Type of share that gives rights of priority as to dividends, as well as priority over other shareholders in a company's winding-up."
• Rights Issue: "Offer of additional shares to existing shareholders, in proportion to their holdings, to raise money for the company."
• Subscriber: "Someone who agrees to buy shares or other securities."

Terms and Synonyms (based on Underlining Exercise):

• Term - Name
• To entail - To involve
• To waive - To give up
• To typify - To be an example of
• To recover - to regain