Guide to Analysing Companies

Power of attorney
A legally binding document that empowers one person to act
on behalf of another. A power of attorney may specify that
the power is for a limited range of purposes or for a limited
time; or it may be given unconditionally. Power of attorney is
often given to guardians by minors or by old people to their
advisers or heirs. Unsurprisingly, such powers can be open to
abuse.
Pre-emption rights
The right to do something before others, as in the pre-emption
right of existing shareholders in a company to buy a new issue
of the company’s shares before they are offered to the public.
Many agreements between companies merging or establishing
joint ventures will contain pre-emption rights, giving each
partner the right to buy out the other’s share should one or other
wish to terminate the arrangement.
Preference share
A share carrying a fixed rate of dividend which has to be paid
in full before ordinary shareholders can receive a cent; called a
preferred stock in the United States. In the case of a winding up or
liquidation, preference shareholders, as the name suggests,
have a claim to the company’s assets ahead of ordinary share-
holders. As a result, preference shares are regarded as an unexcit-
ing but relatively risk-free form of investment. Such shares are
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often issued by investment trusts and other closed-end
funds.
Preferential creditor
If a company is liquidated, some creditors are more equal than
others and get paid first. Preferential creditors include the tax
and customs authorities, as well as certain of the company’s
lower-paid workforce. Then follows the bank and certain
holders of the company’s debt, followed by holders of any
preference shares. At the back of the queue are holders of
the company’s ordinary shares.