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Distinguishing Share Capital And Loan Capital - Essay Example

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Distinguishing Share Capital And Loan Capital

This paper would go to investigate difference between share capital and loan capital, paying meticulous attention to the way in which loan capital may be secured1
Corporate borrowing where this is done by debentures or debenture Stock it also examines the types of charge that companies can issue to Creditors is floating and fixed charges. The priority of secured creditors is considered together with an examination of the registration requirements for charges.
Membership of a company limited by shares is based on an undertaking to Contribute capital to the company in payment for shares issued by the company. The amount of capital to be contributed is a matter for agreement between each Member and the company but once the agreed amount has been contributed neither the company nor its creditors may demand a further contribution2.
The contributed capital of a company is used by it to make profits, which may be shared among is members if the company is wound up when it is solvent, the contributed capital may be returned to members but if it has to be wound up when it is insolvent then all the assets acquired with the members contributed capital will have to be used to pay the company debts and nothing will be returned to the members.
As well as sharing in profits the members of a company normally jointly control it by appointing directors to manage the company affairs. In many private companies, of course, the members are also the directors.

A member of a company who contributes more capital than another will want a proportionally greater share in distribution of the company profits and also a greater influence on the company affairs (i.e., more votes at members meetings). The extent of a members undertaking to contribute capital, and of entitlement to share in distributions and vote at meetings, are all related to the number and class of shares of the company that the member holds a description of each member. Shareholding must be entered against the members name in the company register of members (CA 2006, s 113).

A share is essentially a limit of account for measuring a member's interest in a company. Each share is required to have sum of capital assigned to it as its nominal value (s 542) and this is the size of the unit of account. The nominal value of a share is the minimum value that a company must demand to receive as contributed capital in exchange for the share so if Textbook Examples Co plc, has only one class of members and the nominal value of each of its shares is 50p, and I undertake to contribute 5000 worth of capital to the company I Cannot expect to be allotted more than 10,000 of its shares. Moreover, the company must not offer to allot me more than 10,000 of its 50p shares as an incentive to me to contribute only 5,000 worth of capital because to do so would distort the way in which the shares allotted to me measure my interest in the company (s 580) it is however permissible for a shareholder to undertake to contribute more for shares than their nominal value -the excess is called share premium Capital contributed in exchange for shares, apart from share premium, is called share capital.

Having undertaken ...Show more

Summary

The fraction capital of a company's raised by the subscription, ordinary shares and preference shares is called Share capital. Particular proportion of a company's Capital gather by means of loan is called Loan Capital. Companies raise capital in a number of ways…
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Distinguishing Share Capital And Loan Capital essay example
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