Lecture slides - week 7 - Business School Business Entities...

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Business School Business Entities: Week 7 Debt securities Shares and share capital transactions Company meetings Professor Pamela Hanrahan School of Taxation and Business Law April 2016
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Aims for today At the end of Class 7 you should be able to: Understand the difference between debt and equity capital Explain how companies borrow money and provide security to lenders, including the requirements for debenture issues under CA Ch 2L and for the creation of security over company assets under the PPSA (Chapter 10 of the textbook – carried over from last week) Understand the legal nature of shares and different classes of shares, and the rights that shareholders have as members of the company Describe the legal rules and restrictions on transactions (such as buy-backs and reductions of capital) affecting share capital (Chapter 11 of the textbook) Identify and apply the rules governing general meetings of the company (Chapter 12 of the textbook)
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But first… From last week Fundraising – that is, offering securities – Chapter 6D of the Corporations Act 1. When is a prospectus (or other disclosure document, such as a OIS) required? Section 706 - all offers for issue (and some offers for sale) unless s 708A or s 708AA says otherwise. Section 707 – some offers for sale (off-market sale by controller, indirect issue) unless 708A says otherwise 2. Important exceptions for issues include: small scale personal offers ($2m and less than 20) – s 708(1) sophisticated investors – s 708(8) ($500,000 offer or high net worth person) experienced investors certified by licensee – s 708(10) professional investors – s 708(11) – defined in s 9 others – see p 272-3 of the textbook rights issue for disclosing entity – cleansing notice – s 708AA 3. What goes in the prospectus? General disclosure requirement in s 710 and specific disclosures (s 711 – 716)
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But first… From last week 4. Procedure for offers – summarised in s 717 5. Role of ASIC – textbook p 280-1. Targeted review of documents (but no pre-vetting). Power to issue stop orders. Enforcement action – example Firepower discussed on p 286 6. Prohibitions, liability and defences. Criminal liability, civil liability for defective disclosure documents (ss 728 and 729), defences (including due diligence and reasonable reliance defences) 7. Restrictions on advertising, hawking 8. Crowdsourced equity funding – reform on the way?
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Sources of corporate finance Principal sources include: share capital (sometimes called “equity”) debt finance off balance sheet financing, eg equipment leasing trade finance retained earnings
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Debt Equity Company’s obligation to pay interest does not depend on whether it has made a profit There is no requirement to pay a dividend Creditors expect repayment of principal at the end of the agreed term of the loan No expectation of a return of capital while the company is a going concern Creditors are not members of the company Equity holders are members, with members’ rights
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