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Capital Accumulation for Beautiful You Ltd - Essay Example

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Capital Accumulation for Beautiful You Ltd (Date) Introduction The ever changing business environments often force entrepreneurs to apply emergent strategies that have the potential to determine the overall sustainability of their firms…
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Download file to see previous pages This report will point out the documents need to be prepared and the various mandatory procedures Alethra Brotherton and her partner and Beautiful You Ltd. need to comply with, in order to issue the shares to Expansion Capital plc or, alternatively, borrow the money from the bank and create the security required.  I. Legal Procedures and Documentation Required According to Bos (1969), every business transaction is a legal activity as each business concern is a separate legal entity. In the given case, there are two options available for the Beautiful You Ltd to finance its planned expansion. One is to acquire ?150,000 from Expansion Capital plc in return of one third of the shares of the company. The second option allows the company to receive ?100,000 from the company’s bank on the strength of a fixed charge over the new shop premises. In order to proceed with both these options, the Beautiful You Ltd has to prepare certain documentations and comply with other legal procedures. If the company decides to finance its proposed business expansion plan by acquiring funds from Expansion Capital plc, it needs to issue one third of its shares to Expansion Capital plc. Since the Beautiful You Ltd is a private company, it is not required to state the authorized share capital. However, if the Beautiful You Ltd has registered before 01.10.2009, it would have an authorized share capital provision in its memorandum of association if it has not been removed. In such a situation, the Beautiful You Ltd can issue shares only up to its authorized capital amount which is stated under the capital clause of the memorandum of association. If the company has no sufficient authorized capital available, it must amend the articles before the share issue. A copy of the passed resolution, a form of G123, and the altered memorandum must be registered at Companies House. However, these procedures do not affect the Beautiful You Ltd if it had been formed after 01.10.2009. Although the share allotment is a matter of management, the directors are subjected to some statutory obligations in order to prevent abuses of powers. The directors have the authority to allot shares if the company has only one class of shares; this provision is also subjected to specific restrictions in the company’s articles (sec550, CA 2006). In contrast, a special resolution (sec51, CA 2006) or a provision in the company’s articles must authorize the directors to allot shares if the company has more than one class of shares. While taking a decision regarding share issuance to the Expansion Capital plc, the beautiful You Ltd must consider the pre-emptive rights for existing members, which have been defined as statutory pre-emptive rights in sec561, CA 2006. However, the Beautiful You Ltd can exclude these rights by either a provision in the company’s articles or by passing a special resolution (sec569-sec571). When the Beautiful You Ltd takes such a capital accumulation decision, some of its existing shareholders may waive their rights to them. Under such circumstances, the company has the legal obligation to offer shares to them. After ensuring that all the above matters has been attended, the directors of the Beautiful You Ltd may resolve to allot shares by clearly stating number and class of shares, the price paid, the allottees, whether for cash or other assets. The directors must issue share certificate to the Expansion ...Download file to see next pagesRead More
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