Share Capital and Distributions: Master Company Law with Interactive Quizzes

Question 1

What is the difference between issued capital and allotted capital?

Accepted Answer

Issued capital is the total value of shares subscribed for, while allotted capital is the total value of shares actually issued

Answer

Issued capital includes partly paid shares, while allotted capital does not

Answer

There is no difference between issued capital and allotted capital

Answer

Allotted capital includes bonus shares, while issued capital does not

Question 2

What is the purpose of a dividend equalization reserve?

Accepted Answer

To smoothen dividend payments over time

Answer

To increase the company's share value

Answer

To reduce the company's tax liability

Answer

To finance capital expenditures

Question 3

Which of the following is NOT a right of shareholders in respect of dividends?

Accepted Answer

Right to a minimum dividend

Answer

Right to receive dividends declared

Answer

Right to participate in any surplus assets in the event of winding up

Answer

Right to vote on the proposal for dividend distribution

Question 4

What is the maximum amount of share capital that a company can issue?

Accepted Answer

Authorized capital

Answer

Issued capital

Answer

Paid-up capital

Answer

Subscribed capital

Question 5

Which of the following factors is NOT considered when determining the amount of a dividend distribution?

Accepted Answer

Shareholders' investment objectives

Answer

Company's profits

Answer

Company's cash flow

Answer

Tax implications

Question 6

What is the primary reason for a company to issue bonus shares?

Accepted Answer

To reward existing shareholders

Answer

To increase the number of shares in circulation

Answer

To raise additional capital

Answer

To reduce the company's share price

Question 7

What is the purpose of a stock split?

Accepted Answer

To increase the number of shares in circulation and reduce their price

Answer

To consolidate the number of shares in circulation and increase their price

Answer

To reward existing shareholders

Answer

To raise additional capital

Question 8

Which of the following is NOT a consequence of a stock split?

Accepted Answer

Reduction in the company's share capital

Answer

Increase in the number of shares held by existing shareholders

Answer

Decrease in the market value per share

Answer

No change in the company's total market capitalization

Question 9

What is the legal liability of shareholders for the debts of the company?

Accepted Answer

Limited to the amount of their investment

Answer

Unlimited

Answer

Varies depending on the type of share capital held

Answer

Only applies to directors and officers

Question 10

When a company issues shares to its shareholders, what type of share capital is created?

Accepted Answer

Issued capital

Answer

Authorized capital

Answer

Subscribed capital

Answer

Paid-up capital

Question 11

Which type of share capital typically has a fixed dividend rate?

Accepted Answer

Preference shares

Answer

Ordinary shares

Answer

Redeemable shares

Answer

Deferred shares

Question 12

How does share capital contribute to a company's financial stability?

Accepted Answer

It acts as a financial buffer, absorbing losses and supporting solvency.

Answer

It has no impact on a company's financial stability.

Answer

It must be fully used for dividend payments.

Question 13

When a company issues shares at a premium, which of the following is a potential outcome?

Accepted Answer

Increased share capital reserves

Answer

No impact on the company's financial position

Answer

Reduced retained earnings

Answer

Decreased company valuation

Question 14

Which of the following characteristics correctly describes share capital?

Accepted Answer

It represents the ownership interest in a company

Answer

It is unlimited in amount

Answer

It can be reduced without the consent of the shareholders

Question 15

What is the distinction between authorized capital and issued capital?

Accepted Answer

Authorized capital is the maximum limit set for share capital a company can issue, whereas, issued capital refers to the portion of authorized capital that has been fully subscribed and allotted to shareholders

Answer

Authorized capital is the amount of share capital that has been paid up by shareholders, while issued capital is the amount that has been subscribed for

Answer

Authorized capital can only be increased, while issued capital can only be reduced

Question 16

Which of the following are types of dividends?

Accepted Answer

Cash dividends, stock dividends, and property dividends

Answer

Cash dividends and stock dividends

Answer

Stock dividends and property dividends

Question 17

Issuing bonus shares has several advantages. Which of the following is NOT an advantage?

Accepted Answer

They can increase the company's earnings per share

Answer

They can increase the number of shares in issue without diluting earnings per share

Answer

They can be used to reward shareholders without paying out cash

Question 18

What are potential drawbacks of issuing bonus shares?

Accepted Answer

They can reduce the value of existing shares, and they can lead to an increase in the company's tax liability

Answer

They can improve the company's credit rating, and they can enhance shareholder confidence

Answer

They can increase the share price, and they can be used to raise additional capital

Question 19

What is the difference between a capital reduction and a share buyback?

Accepted Answer

A capital reduction reduces the amount of share capital in issue, while a share buyback involves the company repurchasing its own shares

Answer

A capital reduction can only be done with shareholder approval, while a share buyback does not require shareholder approval

Answer

A capital reduction increases the amount of share capital in issue, while a share buyback involves the company issuing new shares

Question 20

What are the two main legal requirements for a company to reduce its capital?

Accepted Answer

The company must have a special resolution passed by its shareholders, and the reduction must be approved by the court

Answer

The company must have sufficient distributable profits, and the reduction must be approved by the creditors

Answer

The company must have a majority vote of its shareholders, and the reduction must be approved by the board of directors

Question 21

What is the authorized share capital of a company?

Accepted Answer

The maximum number of shares the company is legally permitted to issue.

Answer

The total number of shares currently held by shareholders.

Answer

The minimum number of shares the company must issue.

Answer

The amount of capital the company has raised from share issuance.

Question 22

Which of these factors DOES NOT directly influence the total dividend payout declared by a company?

Accepted Answer

The number of authorized shares.

Answer

The company's cash flow.

Answer

The company's profitability.

Answer

The number of issued shares.

Question 23

What is the primary legal framework governing share capital and distributions for UK companies?

Accepted Answer

The Companies Act 2006.

Answer

The European Union's Share Capital Directive.

Answer

The Financial Conduct Authority (FCA) regulations.

Answer

Common law principles of company law.

Question 24

A company issues 100,000 shares with a par value of £1 per share. If the company raises £150,000 from the share issue, what is the share premium?

Accepted Answer

£50,000

Answer

£150,000

Answer

£0

Answer

£100,000

Question 25

How can a company reduce its share capital?

Accepted Answer

By buying back its own shares.

Answer

By increasing the par value of its shares.

Answer

By issuing new shares.

Answer

By declaring a higher dividend.

Question 26

What is the primary purpose of a company's Articles of Association in relation to share capital and distributions?

Accepted Answer

To outline the rights and obligations of shareholders, including dividend entitlement and voting rights.

Answer

To outline the company's business objectives and strategic plan.

Question 27

What is the main reason a company might choose to issue bonus shares?

Accepted Answer

To capitalize retained earnings and increase shareholders' equity without raising new capital.

Answer

To increase the company's share price in the market.

Answer

To reduce the company's tax liability.