ABSTRACT
If this book were focusing, as so many company law books do, on the creation of a trading company from scratch and its struggle into life, then we would have to consider how money would be raised to fund the company’s activities. When a company is rst formed, the original shareholders (known as ‘the members’) are said to ‘subscribe’ to the company’s constitution and consequently they pay for the rst shares that are issued by the company in accordance with that constitution. From the company’s perspective, this is usually the rst capital that is raised by the company. The complexities that may be associated with the company’s capital were considered in the previous chapter; as was discussed there, it is possible to divide between different classes of shareholders with different rights. A start-up company may also borrow money from a bank or from some other person in accordance with the ordinary law of contract, and in accordance with banking law if the lender is a bank. Bank borrowing makes no difference to a company’s share capital, except that a company with too much debt may well be a poor investment for shareholders because much of the pro ts may be needed to pay off the debt, and except that if a company borrows money, there will be fewer shares needed to pay for the company’s trading activities.
