Company law:capitalisation 1: I n Company law is a verywide area.Thistext servesas an introduction to the legal terminology and issuesregardinghowcompaniesraisecapital in the UK. 1 Read through the text quickly and decide whether these statements are true or false. 1 The shares of a company which are actually owned by shareholders are known as authorised share capital. . 2 Share capital is subdivided into two basic types of share: ordinary and preference shares. 3 People who already own shares possess the right of first refusal when new shares are issued. 4 In addition to share capital, loan capital is another means of financing a corporation. 1 (US) articles of incorporation 2 (US) authorized shares 3 (US) common shares 4 (US) preferred shares 5 (US) stock split 6 (US) reverse (stock) split 7 (US) preemptive rights J
Transcript
Companylaw:capitalisation
1: I nCompanylaw is a verywide area.Thistext servesasan introductionto the legal terminologyandissuesregardinghowcompaniesraisecapital in the UK.
1 Readthrough the text quickly and decide whether these statements aretrue or false.
1 The shares of a company which are actually owned by shareholders are known
as authorised share capital. .2 Share capital is subdivided into two basic types of share: ordinary and
preference shares.
3 People who already own shares possess the right of first refusal when newshares are issued.
4 In addition to share capital, loan capital is another means of financinga corporation.
1 (US) articles of incorporation
2 (US) authorized shares
3 (US) common shares
4 (US) preferred shares
5 (US) stock split
6 (US) reverse (stock) split
7 (US) preemptive rights
J
8 (US) security interest in specific assets (also chattel mortgage prior to the Uniform Commercial Code)
.. h2 Match these terms related to shares (1-8) with their definitions (a-h).
a someone who agrees to buy shares or other securities
b offer of additional shares to existing shareholders, in proportion to theirholdings, to raise money for the company
c type of share in a company that entitles the shareholder to voting rights anddividends
d entitlement entailing that, when new shares are issued, these must first be
offered to existing shareholders in proportion to their existing holdingse maximum number of shares that a company can issue, as specified in the
firm's memorandum of association
f proportion of authorised capital which has been issued to shareholders inthe form of shares
g type of share that gives rights of priority as to dividends, as well as priorityover other shareholders in a company's winding-up
h part of a company's profits paid to shareholders
3 Underline the words (1-5) in the text. Then match them with their synonyms(a-e).
1 term
2 to entail3 to waive
4 to typify5 to recover
a to be an example ofb to give upc name
d to regaine to involve
4 According to the text, the minimum amount of share capital of a public limited
company in the UK is £50,000. Do similar restrictions apply in yourjurisdiction? If so, what are they?
Unit3 Companylaw: capitalisation
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ng I n
Look at this
Issued share capital, as opposed to authorised share capital, refers to sharesactually held by shareholders.
When describing alistener is alreadyprepositions
Issued
held byIssued share
actually held by shareholders.
All three of these
sentence if the
As
share capital refers to
These prepositions cansame time. In such a case,following way:
Issued shareopposedto /the maximum amountOr:Asrefers to the maximumissued share capital
5 Read the information in the table below about the two basic classes of shares:
ordinary shares and preference shares. Using the prepositions explained
above, make sentences contrasting the two share types.
EXAMPLE:
1 (AnLi.keordincA..r!:jshcA..res, preference shcA..res cio not tAStA<AlLyenillie theshcA..rehol,(ter to vote.
In contro...st to ordincA..r!:jshcA..res, ~hi.d1 entitle the shcA..rehol,(ter to vote,
preference shcA..res cio not tAStA<AlLy9~ve StAch 0...r~ht to the shcA..rehol,(ter.
,
ning 1:Lawyerswith expert knowledgeof corporatefinanceareoften askedto explain complexmatters in simple termsto companymembersor to shareholders.Thisdialoguetakesplaceat a seminarheld at a large law firm specialisingin capitalisationmatters.A memberof a shareholders'association[MrsWhiteman)is askinga corporatefinanceexpert [Mr Young)to explaina rights issue,oneof the keyterms in Reading1.
6 ..::: Listen to the dialogue and answer these questions.
1 What is the purpose of a rights issue?
2 What options do the shareholders have if they do not wish to buy the newlyissued shares?
7 ..::: Listen again and choose the correct answer to each of these questions.
1 According to Mr Young, one reason why shareholders would want to take uptheir pre-emption right isa to help the company raise cash.b to maintain the proportion of shares they own.c to be able to waive this right later, if desired.
2 Why are the new shares offered to shareholders at a discount?
a so the shareholders do not sell their rights to non-shareholdersb to keep the market price of the shares from falling
c to increase the likelihood that the issue is fully subscribed
3 A share issue is said to be 'fully subscribed' when
a all of the shareholders have been duly informed of the share issue.
b all of the shareholders have sold their rights to the newbl issued shares.c all of the newly issued shares have been agreed to be purchased.
4 What does Mr Young say about shareholders' reactions to rights issues?a They can be unhappy about having to decide whether to buy shares or sell
rights.
b They fear that discounts may make the market price of the sharesdecrease.
c They are concerned about outsiders gaining influence in the company.
Theexcerpton pages38-39 dealswith the topicsof shareholders'rights and the role ofthe supervisoryboard.It is part of the requiredreadingin a comparativelaw coursedealingwith Europeanand Anglo-Americancompanymanagementstructures.
8 Readthrough the text quickly and answer these questions.
1 What basic rights does a shareholder possess?
2 What options does a dissatisfied shareholder have in the Anglo-Saxonsystem?
3 What is meant by the concepts of the one-tier board and the two-tier board?
(Note: the word tier means 'rank' or 'level'.) Which do you think is the bestmodel of organisation?
Unit 3 Companylaw: capitalisation
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9 Read the text again carefully. In which paragraph (A-G) are the followingmentioned? Some of the items may be found in more than one paragraph.
1 some stipulations of co-determination laws
2 the functions of supervisory boards in Germanic countries
3 two options open to a shareholder when dissatisfied with management4 activities carried out at the annual general meeting5 opinions on effectiveness of the two-tiered system in times of crisis6 the difficulty of co-ordinating management monitoring efforts7 three rights to which the owner of an asset is generally entitled
8 comparison of the composition of executive board and supervisory board
10 In your own words, explain to a partner the meaning of the followingexpressions (in italics in the text).
1 risk diversification
2 awkward questions3 flow of information
4 face... obstacles5 the free-rider issue6 vote with one's feet
7 answer to the annual meeting8 co-operative conflict resolution
9 participatory framework10 subjected to the public gaze
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2: onno ]
Look at the
Can shareholdersIn return for the
generally restlAnyone smallmanagement Ias a group.Co-determination rules
to control and monitor
the management board, ...
11 Match the verbs (1-4) with their definitions (a-d).
1 exercise (control) a 1) to remove someone from their job, usually because they have donesomething wrong; 2) to cease to consider, to put out of judicialconsideration
b to increase in number or amount over a period of time, especially ina financial sense
c to make use of / apply something
d to limit someone or something
2 restrict (powers)
3 accrue (benefits)
4 dismiss (members)
12 Match the verbs above (1-4) with the nouns in the box with which they collocate. Somenouns can go with more than one verb.
accesscontrol
profits
authority benefits caution capital a case a charge a claiman employee force freedom influence interest power pressurerestraint revenue rights sales spending
EXAMPLE: 1 exercise: OJAthor~, COJAUoI1,...
13 Complete these sentences using exercise, restrict, accrue or dismiss.
1 A motion was filed by the Board of Directors to the case.
2 The chairman warned that if investors were asked for more money, theymight their option to sell their shares.
3 The Chief Executive resigned when the board tried to greatercontrol over the company's bankruptcy plan.
4 The company is expected to .""""."""."""" its spending while its markets remainweak.
S Financialbenefits .. to the owners and operators of the factories, aswell as to the shareholders.
6 A company spokeswoman advised shareholders to caution in theirshare dealings until a further announcement is made.
7 One important Commercial Code provision may some of the
freedom of directors to grant options without shareholder approval.S The annual general meeting has authority to draw up or amend the
constitution and to elect or member directors of the Board.
,
.Ingng:
the
issue.
importantthe framework of the
or distinctions
14 A client of yours who is interested in investing in a German company has asked
~~~~TIl you to explain the differences between the one-tier corporate management»p.;s6j system characteristic of Anglo-Saxon countries and the two-tier corporate
management system found in Germanic countries. Write an email to your clientsummarising the differences. Refer to Reading 2 for information.
In your email, you should:
0 divide the text into three distinct parts: an opening statement of the reasonfor writing; the body of the email presenting the main points; and a
conclusion offering to provide further help or information if required;0 make use of the words and expressions for signalling contrast introduced
earlier in the unit.
.nlng 2: en
Lawyersoften have to explain the meaningof a legal documentto a client in plainlanguage. This is a conversation between a lawyer, Mr Mansfield, and his client,MrThorpe, about provisionsconcerningcapitalisation.
15 Before you listen, discuss these questions.
1 Do you have any difficulties with legal language? Which do you considermore difficult, reading or writing legal English?
2 Think about the style of legal documents written in your native language and
those written in English - are they equally difficult for non-lawyers to understand?
16 ..;:: Listen and decide whether these statements are true or false.
1 The client says that the subject of law is very complex.
2 'Legalese' refers to the process of enacting a law.3 The client believes that legal texts are too difficult for most people to read.
17 ..;:: Listen again and answer these questions.
1 What is the Plain Language Movement?
2 Why is there some opposition to it?
3 What is Mr Thorpe implying when he says legalese makes people needlawyers more?
Unit 3 Companylaw: capitalisation
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Legalese often poses problems for those umamlliar with It, SUch as
lawyers (clients). However, non-native English-speaking lawyers may also findlegalese difficult to read. An awareness of some of the typical features of thiswriting style can make it easier to understand texts of this Some
features of legalese are the following:
clauses are joined together with commas or the co-ordinatorsandjbut.
such, said, same,
By whom? No agentcarried out and not
18 This is an excerpt from provisions regulating the capitalisation of a corporation,written in legalese. Read it, noticing the lengthy and complex sentences. Thenunderline the passive verbs and circle any archaic words and expressions.
19 For each instance of the word such in the text above, suggest a more natural-sounding alternative.
,
20 Match these words beginning with there- (1-6) with their equivalents (a-f). Thefirst three occur in the text on page 42.
1 thereto2 thereon3 thereof
4 therewith5 therefor6 therein
a of it/them
b on it/themc to it/thatd for it/thate with that
f in or into a particular place or thing
21 Complete the sentences below using the words in the box.
1 Each partner shall maintain both an individual drawing account and anindividual capital account; into the capital account shall be placed thatpartner's initial capitalisation and any increases '"'''''''''''' .
2 Every issuer must comply in all respects with the provisions, including allfiling and notice deadlines. .
3 Her experience in corporate finance includes representing banks and otherfinancial institutions in numerous secured financings, including drafting andnegotiating credit agreements and security documents in connection..........................
4 The Chair of the Committee shall, in consultation with the other members of
the Committee and appropriate officers of the Company, be responsible forcalling meetings of the Committee, establishing the agenda , andsupervising the conduct .
5 The circular prescribes requirements for the accounting and reporting ofinterest on loans and other interest-bearing assets and for the capitalisationof interest .
6 The memorandum of the company, together with a translation , ifany, certified and translated as prescribed in regulation 4, shall be lodgedwith the Registrar.
n9: h opinio22 Working with a partner, take turns rephrasing the sentences from the text on
page 42 in your own words as if you were explaining their content to a client.You may want to break them into shorter sentences and turn passive
constructions into active ones (e.g. instead of shares may be issued, say thecorporation may issue shares).
EXAMPLE:
(1) A corporo.l.ion C<A..Y\~ss(Ae no more tho...n 25,000 sVt<AYes.f~ve thouso...ncL
of these <AYeworth $50 w.cl1 o...ncLthe remoJ,ning 2.0,000 Vti:lve no p<AYv<A1..ue.
23 When expressing an opinion, it is common to begin the statement with a
phrase signalling that it is an opinion. Read the transcript of Listening 2 onpage 265 and underline the phrases the speakers use to signal an opinion.
Unit3 Companylaw:capitalisation
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24 Complete the phrases below using the words in the box.
askpoint
concerned firmly me mindsee seems think would
my opinion
1 In my , ...2 The way I it, ...3 To my , ...4 In view, ...5 If you me, ...6 Frommy of view, ...
7 As far as I'm , ...8 I..........................
9 It to me that...10 I believe ...11 For , ...12 I argue that...
25 Discuss this topic with a partner. Whenever possible, make use of phrases for
expressing opinions.
Legal language differs greatly from everyday speech and writing. Do thesedifferences lead to clearer and more objective communication, as lawyers
generally claim, or do they actually have the opposite effect?
Reading3: New legislationThe text below is from the website of a large accountancy firm offering corporate financeservices. It deals with a change in UKlegislation concerning treasury shares from a few
years ago.
26 Read through the text quickly. What does the new law specify? Why has it beenenacted?
Tr~asury $l1aresCacquisition Qf%()wl1$~~res}
Under current company legislation, companies that have used surplus cash reserves to buy backtheir own shares are required to cancel those shares and not hold them in treasury to be resoldat a later date.
On 22 December 1999, DrCompetition and Consumer Affairs at the Department of Trade and Industry (DTI), announced thatthe law prohibiting companies to hold their own shares in treasury was to be deregulated.
Following the publication of a draft document detailing likely amendments to the regulations
2001, it was announced that a.;new will come; intopermit companies to buy back their own shares and hold themcancel them.
This new legislation will only apply to company shares that are listed on the London Stock
Exchange's official list, corrl.Rarabl~\,Europ~.anEconomic Area (EEA) market, of other public companiesor private companies. Qualifying shares will be held in treasury until they are either resold or
transferred to an appropriate employee share scheme.
This change to company law twithout incurring the co'sts ofThe new law will also bring the UK into line with other EEA countries.
Companies must buy back shares out of distributable reserves, and these shares must not atany time exceed 10% of their issued share capital (surplus treasury must be disposed ofwithin 12 months). beentitled to a dividend.
~
27 List the six limits on the buying back of shares mentioned in the text.
28 Discuss these questions.
1 Has similar legislation been enacted in your own jurisdiction?2 Can you think of any examples of other laws passed recently in your
jurisdiction concerning company capitalisation?
29 Which noun collocates with these verbs in the text?
buy back cancel hold in treasury transfer re-issue
30 Complete the following phrases from the text using the prepositions in the box.
I into (x2)to (x3) under with
1 current company legislation...2 ... amendments the regu lations...3 ... a new company law will come .. force ...4 This new legislation will only apply company shares that are listed
on the London Stock Exchange's official list, ...5 Thischange companylaw...6 The new law will also bring the UK ..
countries.line. other EEA
Unit 3
To improve your web-based research skills, visit www.cambridge.orgjeltjlegalenglish.click onResearch Tasks and choose Task 3.
Unit3 Companylaw: capitalisation
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Vocabulary: distinguishing meaning Which word each
You may need to consult a dictionary to distinguish
Use of prepositions Complete the sentences below usingbox. The sentences are taken from texts
1 Initially, company capitalisation
2 A company may authorise capitalshare capital but refrain
3 In return the privilege ofpowers are generally restricted.
4 Someone with ownership a company candisappointment company's performance bytheir shares or in some way expressing their concern.
5 With the Anglo-Saxon one-tier board, managing executivesthe board, and all
appointed the
annual meeting.6 The shares shall be
having a par value, and common, to consist of 20,000
Adjective formation Add the prefixesform its opposite.
1 dependent2 likely
3 respective4 legal5 normal6 limited
7 restricted8 direct9 formal
10 comparable
Word formation and meaning The noun forms of the verbs in the table appear inReadings 1-3. First match the verbs (1-9) with their definitions below (a-i). Thencomplete the table with the abstract noun form. Consult a dictionary if necessary.
lawc
e
make their words or actions
g
h and support of someone or something into succeed
or accept something
Understanding legalese Summarise the following text in one sentence.
express or implied, these best wishes for an
responsible, low-stress, non-addictive and gender-neutral holiday as practised the mostenjoyable traditions religious persuasion of choice (but with respect forthe religious others, or for their choicenot to and further for a fiscallysuccessful, medically uncomplicated onset of the generallyaccepted to, calendar, but notwithout due of choice of other cultures). The preceding
wishes age, physical ability,religious platform or sexual preference ofthe
