Law - Company Financing Overview

COMPANY FINANCING

Share capital  equity finance

Primary market – investors

Equity capital a lot more control/ stability

• Shares are a form of securities under the Corporations act and includes  ordinary, Preference, and Options

Do shareholders and creditors have the same rights? 563a CREDITORS ABOVE MEMBERS

CASE sons of gwalia v Margaretic (class action) because the shareholders were misled they are entitled to same as unsecured creditors  over turned by aus govt

1. shareholders pay to have rights in the company

2. creditors however pay to have a contract to regather funds plus interest they have no say in the business.

FUNDRAISING  DISCLOSSURE DOCUMENTS 

Disclosure of share offer (s706) must be provided to investors unless that an exception applies (s708 and s708AA)

705+709 – prospectus 710 and 711(comprehensive large fund raising doc)

short form prospectus 712

profile statement714

offer information statement 715 (below 10m of fundraising)

702 when disclosure documents are necessary

708 when disclosure documents are not necessary (informed investors [more than0.5million to invest], and large companies)

728 misleading disclosure.

Section 734  Restrictions on advertising shares (if ur interested well send out a prospectus) because there should be full disclosure available for every one

MANTINANCE OF SHARE CAPITAL

• In the common law, the rule in Trevor v Whitworth set out that companies must maintain their issued share capital for the benefit of creditors.

• However, this strict application of the capital maintenance rule has been modified in the Corporations Act. Chapter 2J permits a company to engage in the following transactions:

 Reduction of share capital

to many dividends, to many shareholders, to many people involved in votes etc. (it becomes a drain on the businesses resources

Mandatory Reduction of share capital s 256 [look at rules] company sells back to share holders a portion of their shares...