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Alex J.
Alex J., Solicitor
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Experience:  Solicitors 2 years plus PQE
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What is the legality behind a seed capital deal?

Resolved Question:

What is the legality behind a seed capital deal?
Submitted: 3 years ago.
Category: Law
Expert:  Alex J. replied 3 years ago.
Hi,

Thank you for your question and welcome.

My name is XXXXX XXXXX I will assist you?

Are you asking about the legality of offering seed capital or investing it?

Kind regards

AJ
Customer: replied 3 years ago.

Offering seed capital thanks

Customer: replied 3 years ago.

Eg. Looking for seed capital.

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

The legality arising around if you are offering shares for sale.

If it is non descript investment opportunity to invest in a trading business then it is unlikely to fall under any FCA regulation if as a result of the offer someone buys into the share capital of the company then this too also will not be regulated.

The issues tend to come where some says they are looking for investment and will offer 25% of the shares in their company for the investment. This would have to be done through an authorised broker.

Would you like to discuss this further?

Kind regards

AJ
Customer: replied 3 years ago.

What is the amount of shares needed to retain full authority.


 


Let's say i am on 100 shares and 1 share = 1 vote, does 25% = to 25 shares?


 


 

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

It depends what the articles say but normally voting is weighted on the percentage of the share capital you own.

For example to pass a special resolution you need people to vote in favour of that resolution who represent at least 75% of the voting share capital.

Therefore in theory to retain full authority of the company you need at least 75% of the voting share capital (i.e 75 shares in your example). However assuming the articles were standard, a 26% stake could allow you to block most significant actions of the company.

Kind regards

AJ
Customer: replied 3 years ago.

Does seed capital only require equity sales?

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

Seed capital is a term of art it can be an investment in a business by way of debt or equity or a combination of both.

For example I invest £10k by way of a loan and receive 100 shares at nominal value and a debenture to secure the loan.

Kind regards

AJ
Customer: replied 3 years ago.

Right, what is nominal value legally?


 


And how are debentures issued

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

The nominal value is what issued value of the shares are without any premium. This will be detailed in the articles and statement of capital of the company.

For example 100 shares of £1 each means the company has a nominal share value of £100. It may be that the shares are worth substantially more than this because of the underlying asset value of the company.

A debenture is just a standard document that a company enters into with the debenture holder. It will contain a fixed and floating charge over a company's assets to secure specified liabilities (like a loan for example). It is then registered at Companies House.

Kind regards

AJ
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