Company Law Essay Example | Topics and Well Written Essays - 2250 words

Company Law - Essay Example The tax system also favours debt financing. The share capital and its cost is difficult to determine as there is no schedule that determines the amount that is paid to the shareholders. Furthermore, the tax system does not favour share capital. If a share capital is raised, the person who acquires such shares and becomes member of the company and in accordance with his class is granted certain rights. Thus it can be safely said that there would be a degree of influence which he can exercise over the running of the company. This is so even if the person is a minority shareholder. As far as a lender is concerned, he is generally not entitled to interfere in the running of the company and so as long as the company is complying with the terms of the debenture no action can be taken by the lender so as to influence the policy of the company. In respect of a dividend for the shares, it needs to be paid only if there is a profit and that too is discretionary that is the directors decide upo n whether it should be paid or not. Contrary to shares, the interest on debt finance must be paid in accordance with what had been agreement upon and is in no way dependent upon the profits of the company. Thus even if there are no profits, the capital has to be used so as to pay the interest failure of which would entitle the lender to appoint an administrator or receiver, in accordance with the terms and conditions of the agreement. As far as dividend is concerned, it is not a deductible expense because of the fact that is a distribution of profit and a corporation tax has been deducted from it. However, in respect of the interest for the land and because of the fact that such has been taken as a trading expense and is taken into consideration for computing trading profit, tax is deductible. In respect of share capital a company normally does not have to repay its members the capital which was invested in the company, when company is wound up. Thus the directors do not have to con sider this point. However, for loan capital, there is a date in future on which the loan has to be repaid, which can also be on demand, thus the directors have to consider this and ensure the availability of funds whenever the loan falls due. Thus debt financing may increase earnings per share but there might be a reduction in share price. Thus if investors find that too much has been borrowed then they might sell shares resulting in the company to have greater liabilities than its assets. Thus the directors have to take this into account and to maintain the gearing ratios and to raise share capital and debt finance accordingly. Thus the directors of Green Books Plc would benefit from the advantages listed above and suffer from the disadvantages as well. (ii) In respect of charges, most of them need to be registered with the Companies Registry (CA 2006, s 860) and would be void against liquidator, administrator or creditor who has an interest in the secured assets if not registered (s.874). However, it is important to mention that the contract that is existent between the lender and the company would still be held valid. As for fixed charges over land they must be registered in HM Land Registry. As far as securities are concerned the most attractive ones are buildings etc. A number of fixed charges can be created