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Companylaw:capitalisation

1: I

n

Companylaw is a verywide area.Thistext servesasan 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.

J

1

2

3

4

5

6

7

1 The shares of a company which are actually

owned by shareholders

are known

as authorised share capital.

2 Share capital

is subdivided

preference shares.

.

into two basic types of share: ordinary and

3 People who already own shares shares are issued.

4

possess

In addition

a corporation.

to share capital,

loan capital

the

right of first

refusal when new

is another

means of financing

(US) articles

(US) authorized

(US) common

(US) preferred

(US) stock split

(US) reverse

(US) preemptive

of incorporation

shares

shares

shares

(stock)

split

rights

8 (US) security

interest

in specific

assets

(also

chattel mortgage

prior to the

Uniform

Commercial

Code)

.

.

h

2 Match these terms

related to shares

1 share capital

authorised

2 dividend

3 issued

4 ordinary share

5 pre-emption

6 preference

7 rights issue

8 subscriber

share capital

rights

share

(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

holdings,

to raise money for the company

to their

c type of share in a company that entitles dividends

d entitlement entailing that, when new shares are issued, these must first be

the shareholder

to voting rights and

offered to existing shareholders in proportion to their existing holdings

e maximum number of shares that a company can issue, as specified in the firm's memorandum of association

in

f

proportion

of authorised

capital

which has been issued to shareholders

the form of shares

g type of share that gives rights of priority as to dividends, over other shareholders in a company's winding-up

h part of a company's

profits

paid to shareholders

as well as priority

3 Underline the words (1-5) (a-e).

1 term

2 to entail

3

to typify

5

4

to waive

to recover

in the text. Then match them with their synonyms

a to

b to

c

d

e

be an example

give

up

name

to regain

to involve

of

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 your

jurisdiction?

If so, what are they?

Unit3 Company law: capitalisation

E

9

e

Look at this

1:

ng

.

I

n

Issued share capital, as opposed to authorised share capital, refers to shares actually held by shareholders.

When describing

listener

prepositions

Issued

held by

Issued share

actually held by shareholders.

All three of these

a

is already

sentence

if the

As

share capital

refers to

These prepositions can same time. In such a case, following way:

Issued share opposedto / the maximum amount Or:

As refers to the maximum issued 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

the

shcA

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 corporatefinance are often askedto explain complex

matters in simple termsto

place at a seminarheld at a large law firm specialisingin capitalisationmatters.

A memberof a shareholders'association[MrsWhiteman)is askinga corporatefinance expert [Mr Young)to explaina rights issue,one of the keyterms in Reading1.

companymembersor to shareholders.Thisdialogue takes

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

issued

shares?

do not wish

to buy the

newly

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 up their pre-emption right is

a to help the company raise cash.

b to maintain the proportion

c to

of shares they own.

be able

to waive this

right later, if desired.

2 Why are the new shares

offered to shareholders

at a discount?

3

a so the shareholders

b to keep the market price of the shares from falling

c to increase the likelihood

A share issue is said to be 'fully subscribed'

a all of the shareholders

b all of the shareholders

c all of the newly issued

do not sell their rights to non-shareholders

that the issue is fully subscribed

when

have been duly informed

have sold their

shares

of the share issue.

rights to the newbl issued

shares.

have been agreed to be purchased.

4 What does Mr Young say about shareholders'

to rights issues?

a They can be unhappy about having to decide whether rights.

b They fear that discounts decrease.

c They are concerned about outsiders gaining influence in the company.

reactions

to buy shares

or sell

may make the market

price of the shares

The excerpton pages38-39 dealswith the topics of shareholders'rights and the role of the supervisoryboard.It is part of the requiredreadingin a comparativelaw course dealing with Europeanand Anglo-Americancompanymanagementstructures.

8 Read through 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-Saxon

system?

3

What is meant by the concepts of the one-tier board and the two-tier board?

(Note: the word tier means

model of organisation?

'rank'

or 'level'.)

Which do you think

is the best

Unit 3 Company law: capitalisation

E

9 Read the text again carefully.

In which paragraph

(A-G) are the following

10

mentioned? 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 management

4 activities carried out at the annual general meeting

5 opinions on effectiveness of the two-tiered system in times of crisis

6 the difficulty of co-ordinating management monitoring efforts

7 three rights to which the owner of an asset is generally entitled

8 comparison of the composition of executive board and supervisory board

In your own words, explain to a partner the meaning of the following expressions (in italics in the text).

1

risk diversification

2

awkward questions

3

flow of information

4

face

obstacles

5

the free-rider

issue

6

vote with one's feet

7

answer to the annual meeting

8

co-operative conflict resolution

9

participatory framework

10

subjected

to the public gaze

Unit3 Companylaw: capitalisation

E

no

2:

]

Look at the

Can shareholders In return for the

generally restl Anyone small management I as a group. Co-determination

rules

to control and monitor

the management board,

on

11 Match the verbs (1-4)

1 exercise (control)

2 restrict

(powers)

3 accrue (benefits)

4 dismiss

(members)

with their definitions

(a-d).

a

1) to remove someone

from their job, usually because they have done

something

wrong; 2) to cease to consider, to put out of judicial

 

consideration

 

b

to increase

a financial

in number or amount

over a period of time, especially

in

sense

 

c

to

make

use

of

/

apply

something

d

to limit someone

or something

 

12 Match the verbs above (1-4) with the nouns in the box with which they collocate. Some nouns can go with more than one verb.

access

control

profits

authority

benefits

caution

capital

a case

a charge

a claim

an employee

force

freedom

influence

interest

power

pressure

restraint

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, they

might

their option to sell their shares.

 

3

The Chief Executive resigned when the board tried to

greater

control over the company's

bankruptcy

plan.

4

The company is expected to ."""".""".""""

its spending while its markets remain

weak.

S

Financial benefits

to the owners and operators

of the factories, as

well as to the shareholders.

6

A company spokeswoman advised shareholders to

caution

in their

share 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

constitution

meeting

or

and to elect

has authority to draw up or amend the

member directors

of the Board.

the

issue.

ng:

.

Ing

important

the framework

or distinctions

14 A client of yours who is interested

in investing

between the one-tier

in a German company has asked

corporate

management

~~~~TIl you to explain the differences

»p.;s6j system

characteristic

of Anglo-Saxon

countries

and

the

two-tier

corporate

of the

management

system

found in Germanic countries.

Write an email to your client

summarising

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 reason for 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:

n

e

Lawyersoften have to explainthe meaningof a legal documentto a client in plain

language. This is a conversation between a lawyer, Mr Mansfield,

MrThorpe, about provisionsconcerningcapitalisation.

and his client,

15 Before you listen, discuss

these

questions.

1 Do you have any difficulties

with legal language? Which do you consider

more 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 need lawyers more?

Unit 3 Company law: capitalisation

E

.

.

n

Legalese often poses problems for those umamlliar with It, SUch as

lawyers (clients).

legalese difficult to read. An awareness of some of the typical features

Some

However, non-native

English-speaking

texts

lawyers may also find

of this

writing style can make it easier to understand

features

of this

of legalese are the following:

andjbut.

clauses

are joined

together

with commas

or the co-ordinators

such, said, same,

By whom? No agent carried 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. Then underline the passive verbs and circle any archaic words and expressions.

,

19 For each instance

of the word such in the text above, suggest

sounding alternative.

a more natural-

20 Match these words beginning with there- (1-6) with their equivalents

first three

1

2

3

4

5

6

thereof

thereto

thereon

therewith

therefor

therein

occur in the text

on page 42.

a

b

c

d

e

f

of it/them

on it/them

to it/that

for it/that

with that

in or into a particular

place or thing

21 Complete

the sentences

below using the words in the box.

(a-f).

therewith

thereof

(x2)

therefor

therein

thereon

thereto

1 Each partner shall maintain both an individual drawing account and an

into the capital

shall be placed that

individual capital account;

account

The

partner's initial capitalisation and any increases '"'''''''''''' .

2 Every issuer

must comply in all respects

filing and notice deadlines.

.

with the provisions,

including

all

3 Her experience

in corporate

finance

includes

representing

banks and other

financial institutions

in numerous

secured financings,

including drafting

and

negotiating

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 for

calling meetings of the

Committee,

establishing

the agenda

, and

supervising

the

conduct

.

5 The circular

prescribes

requirements

for the accounting

and reporting

of

interest

of interest

on loans and other interest-bearing .

assets

and for the capitalisation

6 The memorandum of the company, together with a translation

, if

any, certified and translated as prescribed with the Registrar.

in regulation

4, shall be lodged

n9:

h

opinio

22 Working with a partner, take turns

rephrasing

the sentences

from the text

on

to a client.

page 42 in your own words as if you were explaining

their content

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 the

corporation

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<AY

v<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 on page 265 and underline the phrases the speakers use to signal an opinion.

Unit3 Companylaw:capitalisation

E

24

Complete the phrases below using the words in the box.

ask

concerned

 

firmly

me

point

see

seems

think

1

In my

,

2

The way I

it,

3 To my

 

,

4 view,

5

6

In

If you

From my

me,

of view,

mind

my

opinion

would

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

expressing

Legal language differs greatly from everyday speech and writing. Do these differences lead to clearer and more objective communication, as lawyers generally claim, or do they actually have the opposite effect?

opinions.

for

Reading3: New legislation

The text below is from the website of a large accountancy firm offering corporate finance

services.

It deals with a change

in UK legislation

concerning

treasury

shares

from a few

years ago.

26 Read through the text quickly. What does the new law specify? Why has it been enacted?

Tr~asury $l1aresCacquisition

Qf%()wl1$~~res}

companies

their own shares are required to cancel those at a later date.

Under current

company legislation,

that

shares and not hold them in treasury

have used surplus

cash reserves

to buy back to be resold

On 22 December 1999, Dr

Competition and Consumer Affairs at the Department of Trade and Industry (DTI), announced that the 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; into

permit companies

to buy back their own shares and hold them

cancel them.

This new legislation will only apply to company shares that are listed on the London Stock

~

Exchange's official

Economic Area (EEA) market,

list,

or private companies.

transferred

Qualifying shares will be held in treasury

employee share scheme.

to an appropriate

corrl.Rarabl~\,Europ~.an of other public companies

until they are either

resold or

This change to company law t

without

The new law will also bring the UK into line with other EEA countries.

Companies

any time exceed 10% of their issued within 12 months).

entitled

incurring the co'sts of

must buy back shares

out of distributable

share capital

reserves,

and these

(surplus

treasury

to a dividend.

shares

must

not at

must be disposed be

of

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

Complete

I

into (x2)

to (x3)

1

current

2

amendments

3

a new company

4

This new legislation

hold in treasury

phrases

under

transfer

re-issue

30 the following

from the text using the prepositions

with

in the box.

company legislation

the regu lations

law will come

will only apply

force

company shares that are listed

on the London Stock Exchange's

official

5 Thischange

companylaw

list,

6 The new law will also bring the UK

countries.

line.

other EEA

Unit 3

To improve your web-based

research

Research Tasks and choose Task 3.

skills, visit www.cambridge.orgjeltjlegalenglish.click

on

Unit3 Company law: capitalisation

E

Vocabulary: distinguishing meaning Which word

You may need to consult

1

2

3

4

5

6

each

despite

compulsory

a dictionary

equity

of

to distinguish

asset

share

regardless

mandatory

involve

therefor

waive

conversely

discretionary

entail

consequently

relinquish

obligatory

imply

suggest

cede

therefore

accordingly

postpone

Use of prepositions Complete the sentences below using box. The sentences are taken from texts

1 Initially, company capitalisation

2 A company may authorise capital share capital but refrain

3 In return

the privilege of

powers are generally restricted.

4 Someone with ownership a company can disappointment company's performance by their shares or in some way expressing their concern.

5 With the Anglo-Saxon one-tier board, managing executives the board, and all

appointed

annual meeting.

the

6 The shares shall be

having a par value, and common, to consist of 20,000

Adjective formation Add the prefixes form its opposite.

1 dependent

2 likely

3 respective

4 legal

5 normal

6 limited

7 restricted

8 direct

9 formal

Word formation and meaning The noun forms of the verbs in the table appear in Readings 1-3. First match the verbs (1-9) with their definitions below (a-i). Then complete the table with the abstract noun form. Consult a dictionary if necessary.

 

Verb

! Abstract noun

1

issue

e

ss(,t<A.Yice

2

pre-empt

3

refuse

4

consolidate

5

divide

6

resolve

7

diversify

8

amend

9

rely (on)

 

law

c

e

 

make their words or actions

g

h

and support

of someone

or something

in

to 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 most

enjoyable traditions

religious

persuasion

of

choice (but with respect

for

the

religious

 

others,

and further

or for their choice

not to

 

for a fiscally

successful,

medically

uncomplicated

onset of the generally

accepted

 

to,

calendar, but not

without

due

of choice of other cultures).

The preceding

wishes

 

age, physical ability,

 

religious

platform

or sexual preference

of

the