chapter  1
22 Pages

COMPANY FORMATION

Companies raise finance by the issue of shares. Public limited companies can raise finance by offering shares to the public but private companies are prohibited from doing so. All companies can raise additional finance by borrowing and frequently do so. A company implieds power to borrow money, but note that a company's power to borrow money may be limited by the articles of association. Company borrowing can take many forms, including bank overdrafts, promissory notes, mortgages on property and by issuing debentures. Security means to be of a fixed or floating charge. A debenture may be secured or unsecured. However, banks will usually require security for loans to companies and the term 'debenture' is generally used in the context of secured borrowing. A floating charge creates over fluctuating assets, such as stock in trade, book debts, machinery, tools and other chattels allowing the company to deal with the property in the ordinary course of business until crystallization.