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Company Law Problems - Research Paper Example

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This research paper describes main company law problems. It analyses the value of shares for public and private companies and the importance of the floating charge…
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Company Law Problems
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Download file to see previous pages Public quoted companies determine considerations to newly issued stocks by the very prices reflected and accessible to the public in stock market exchanges where they trade. Such prices are held hostage to the basic principle of supply and demand. Thus, when shares of public companies are in demand and are being traded heavily, its prices go up and the opposite is true: if instead of buying, there is a dominant mood of selling company shares in the stock market, company shares go down. There is no escape to this since IPOs are governed and regulated by securities laws and agencies. This gives rise to a justification of the aforementioned statement that prices of newly issued shares reflect their true value in the market.
On the other hand, and on the contrary, private companies are virtually free to choose any basis for pricing newly-issued shares. This, according to the book Auditing: Principles and Practice, valuation of assets, including shares for that matter, may be made in any of the following ways although non-exclusively: cost price valuation, in which the basis of pricing is the original price at which the shares were first issued, including all charges appurtenant to it; market value or net realizable value, which is the prevailing price of the shares in the market; cost of replacement, or valuation based on the prices of similar assets; break-up or scrap value, is valuation based on the probable value of the asset when it becomes unserviceable, and; book value, when shares, or company assets, are valued on the basis of their original price subtracted with its depreciation value (Kumar & Sharma 163-164).Yet, the freedom of private companies to set the price on newly-issued shares is not absolute as evinced by a chain of case law handed down by the English courts. In Re Company (No. 007623 of 1984) [1986] BCLC 362, the court held that the fair value of the shares of an employee must reflect the fact of frustration suffered by him by when the company did not upheld its promise to base his salary on its profitability. ...Download file to see next pagesRead More
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