Glossary of Terms

A

 

Accounting period

A company has to provide a financial statement detailing its profit and loss during the accounting period.

A company’s accounting reference period is determined according to its accounting reference date. This date is given to the company upon incorporation and is always the last day of the month in which the company was incorporated. Filing the form 225 at Companies House can change this date. A company’s first accounting reference period is the period of no more than 6 months but not more than 18 months, beginning with its date of incorporation. Its subsequent accounting referen- ce periods are successive of 12 months beginning immediately after the end of the previous accounting reference period and ending with its accounting reference date.

Accounting Reference Date

This is date on which the company’s financial year ends (see above). The compa- ny’s accounts should be filed up and until this date.

Aggregate

The total amount of

Annual General Meeting (AGM)

Subject to the company’s Articles of Association and Table A, a company must hold a meeting once a year. Private Limited companies may elect to disband of this procedure, however all public companies (plc’s) must hold an AGM.

Allotment

The issue of shares by a company

Allottee

A person whom shares have been allotted by a company; a shareholder

Alternate director

A person appointed by a director to represent him as a director, particularly at board meetings that the appointer is unable to attend

Articles (of Association)

This is the ‘internal’ section of the Memorandum & Articles of Association.
The articles set out the procedures and regulations covering how the company is to be run (i.e. meetings, appointments & removal of officers and shares). The ‘Articles of Association’ are based on ‘Table A’, which may be used in its entirety or with clauses removed or added. The Articles are sent to Companies House on incorpora-tion and may be adjusted by Special Resolution.

Asset value

The underlying value of a share expressed in terms of the assets that it represents. It is calculated by taking the net value of all the assets of the company and dividing this figure by the number of shares that the company has issued.

Authorised Share Capital

The Authorised share capital is the number of shares the company has available to issue at any time. This is laid out in the Memorandum & Articles of the company.

B

 
Bankruptcy

The formal state in personal insolvency where a person’s assets move by operation of law to his trustee in bankruptcy for the benefits of their creditors.

Book debts

Cash sums owing to a company, for example after the supply of goods or services to a customer.

C

Certificate of Incorporation

The birth certificate for a limited company. Companies House issues the certificate to the company upon its incorporation.

Charge

 
In company law the word ‘charge’ is usually used to mean a secured loan (‘mortgage’).

Chose in action

A right to sue for recovery of a debt

Class right

A right attached to a share. The share capital of a company may be divided into different ‘classes’ of share, each class having its own ‘rights’ attached (for example payment of dividends or voting rights). The ‘rights’ attached to each share are set down in the company’s Articles of Association.

Common Seal

The seal of a company, a hand held metal embossing stamp used to imprint the company’s name onto documents into order to authenticate them.

Companies House

The office of the Registrar of Companies.

Consideration

The price for the promise; the value moving from one party to the other. On our ‘transfer of shares or stock’ form, the consideration is the number of shares being transferred from our original subscribers to the new shareholder.

Court of Chancery

The Division of the High Court that hears cases concerning matters of Company Law.

Crown Court

The criminal court that deals with the most serious charges

Crystallisation

The process where a floating charge becomes fixed

D

De facto

In reality

Debenture

The document that creates or gives evidence of a debt. Where the debenture is secured (‘fixed’), the creditor holding the debenture has a priority over other creditors. All debentures must be filed at Companies House.

DTI

The Department of Trade & Industry. This is the government department that over- sees and supervises commerce and Industry in the UK.

Distributable profits

Profits within the company that may be used for the payment of a dividend.

Dividend

The part of the profits of a company that is paid to the shareholders (‘members’).

E

 

Elective resolution

A resolution passed by the members of a private company under the Companies Act 1985 s. 379A. An elective resolution requires permission from all (100%) of its members. There are 5 types of elective resolution:

 

• To give the directors general authority to issue shares
• To dispense with the need to file accounts before the general meeting
• To dispense with the need to hold an annual general meeting
•  To reduce the majority of shareholders whose consent is required for the hol-ding of an extraordinary general meeting at short notice from 95% to 90% or anywhere between 90% and 95%.

F

Fixed charge

Security created over a fixed asset, for example an office block

Floating charge

A charge secured on a class of assets, present and future. This class is likely to change in the ordinary course of business from time to time. It is expected that the company will be free to deal with those assets subject to the charge until such a time as the company ceases to carry on business in the usual way.

Floatation

 
The offer of shares to the public

G

 

Gazette

An official publication of the Department of Trade & Industry in which formal announcements concerning companies are made, for example when a winding up order is made or when a winding up resolution is passed.

General meeting

A meeting of the members of the company

I

Indemnity

Compensation for loss

Indictable

A serious criminal offence capable of trial in the Crown Court.

Insolvency jurisdiction

The court having the power to make a winding-up order in respect of a company.

Instrument of Transfer

A stock transfer form, used to transfer stock or shares to a new shareholder

L

Liquidation

The winding up of a company; the process where the existence of a company is brought to an end.

Liquidator

The person appointed to liquidate the company.

London Stock Exchange

The place in London where shares in quoted companies are dealt.

M

Member

A shareholder in a company limited by shares (public or private) or a guarantor in a company limited by guarantee.

Memorandum (of Association)

The constitutional document of a company setting out the company’s objectives (our limited by shares companies have ‘general commercial’ objects clauses, the objecti- ves of a company limited by guarantee should reflect the nature of the business intended). This document is sent to Companies House on incorporation of a compa- ny.
Misfeasance

Breach of duty / misconduct. The remedy brought about by a liquidator against directors and other officers of a company whom they think may have been in breech of their duty towards the company.

Mortgage

Security for a creditor traditionally crested by the transfer of property to a lender on terms that upon repayment of the debt he will transfer the property back to the borrower.
Mortgage Debenture

A secured loan evidenced in writing and giving the lender priority over the other creditors of a company.

N

Negotiable instrument

A money order used to transfer funds from one person to another, for example a cheque.

O

Ordinary Resolution

A resolution passed by a simple majority of the members (shareholders) in a general meeting.

Ordinary Share

 
A share entitling its owner to receive a divided (if one is paid by the company) only after the payment of a set dividend to the holders of preference shares (only where ‘class rights’ have been set up).

P

Passing off

Where a company wrongly names itself a name similar or that of a similar business in an effort to cash in on its reputation and so expropriate its goodwill.

Pre-emption right

The right if an existing shareholder to acquire further shares in the company. A private company may remove this right, however a Public company cannot.

Preference share

A share giving its holder preferential rights in respect of dividends and sometimes in respect of a return of capital on a winding up.

Premium

 
The amount paid for a share over and above the nominal value of the share

Prima facie

On the face of it – at first sight

Pro rata

In proportion

R

Recognised investment exchange

A place where shares in a quoted company may be dealt

Registrar of Companies

The person at Companies House to who documents are sent to form a company and to whom the necessary returns are made during the lifetime of the company.

Registration

The process whereby a company comes into existence. Documents are sent to the Registrar of Companies and in return, the certificate of incorporation is dispatched

Register of Members

The record that a company must keep of its members (shareholders)

S

Shareholder

A member of the company – a person who owns shares in the company.

Stock Transfer Form

 
Instrument of transfer: the form completed by the transferor of shares to transfer the share to the transferee.

Subscriber

A signatory to the Memorandum of Association upon incorporation of a company

T

Transfer

The process whereby a share passes from one person to another on sale or by way of gift.

U

Ultra vires

‘beyond its powers’. Usually used to refer to a transaction entered into by a com- pany that it is beyond its powers. Sometimes it is also used to refer to a transaction beyond the powers of the directors.

W

Winding up
The liquidation of a company.

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