Hi all, Just a couple of queries about CT2-04: 1) In CT2-04 page 16 fifth paragraph the notes state, “A 25p par value share issued at a price of 40p may only be 80% “paid up” ie only 32p was originally invested in the company.” However surely the premium must have been paid in full (as written in CT2-02 page 6 second paragraph), hence the partly-paid share described would have had the 15p premium paid in full and 20p from the 25p par value paid up. Is this correct? 2) Several times the notes state that securities that are issued in smaller numbers have lower marketability relative to securities issued in larger numbers. Why is the opposite not the case, as if one assumes that the demand for the securities is equal in each case then securities issued in smaller quantities would be under higher demand and hence it would be easier to find a buyer or seller? Thank you
The first of your questions relates to an example in Chapter 4. As far as I can see, that example doesn't refer to the split between the nominal part of the share, and the share premium account. It simply says that if 32p was paid to date, then shareholders are liable for the remaining 8p payment in the event of a bankruptcy. I agree that chapter 2 does indicate that the share premium would have to be paid up first, and then the nominal value later. the second question relates to marketability. In general, the more shares (by value) there are in a company, the more chance there is at any time of there being a buyer and a seller in the market trying to deal. This is what leads to liquidity and marketability. Small companies are generally less marketable because there are fewer people out there holding less shares, and so there are fewer people wanting to deal at any time. Some people believe that when a share price rises to a high level it is best to split the share into smaller pieces because this also helps spread the shares more widely and lead to more transactions.
