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Summary LLB Company Law Capital Maintenance
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  • Course
  • Company Law
  • Institution
  • BPP University College Of Professional Studies Limited (BPP)
  • Book
  • Company Law

detailed summary on capital maintenance to prepare for your tutorial or exam, all you need to feel best prepared; touches on all the most recent cases including critical judicial commentary and journal articles to ensure for higher marks

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  • Capital maintenance
  • May 8, 2021
  • 4
  • 2020/2021
  • Summary

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  • capital maintenance

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The Legal Eagle Study Notes

Company Law: registrar of profits, so far as not
Capital Maintenance members • Dividends / unlawful previously utilized by
L.O: • Authorized minimum PLC: distributions distribution or
- Describe the s761 CA 2006: £50,000 – Dividends are returning capitalisation, less its
maintenance of share only applies to public profit to shareholders accumulated, realised
capital doctrine companies must have investment. For purpose of losses, so far as not
-Explain the key rules in minimum of £50k share s829 (1) CA 2006 dividend previously written off in a
relation to dividends capital. reduction or reorganisation
is a “distribution” means
-Identify an unlawful
every description of of capital duly made“
distribution • THE ORIGINS OF THE DOCTRINE
distribution of a company's s830(2) CA 2006
-Explain reduction of share Trevor v Whitworth (1887)
capital assets to its members,
12 App Cases 409 – the -Shares can be issued for a
-Explain the procedures for whether in cash or
doctrine is about creditor premium, any premium
purchasing own shares and otherwise, subject to the
protection. Developed from must be paid into a
redeeming redeemable common law says “Share following exceptions – separate account –share
shares capital of company is seen Types of Dividends premium account- it is
-Explain how the rules on as a permanent fund E.g. 1 Dividend known as
financial assistance relate available to creditors” Holding Company and a NON-distributable reserve.
to the maintenance of Creditors entitled to wholly owned subsidiary
share capital assume that the full (all shares owned by Relevant accounts
Recap nominal value, and Holding company), then • s836 CA 2006 – relevant
Share Capital: A company’s premium have been paid shareholders own at accounts could be most
share capital is made up of up and no capital of the Holding Company level. Top recent annual accounts,
the shares that it has issued company will be dissipated Co made profit, board specially prepared interim
to its members other than in the ordinary wants to give profits to accounts, or initial accounts
Allotted share capital: s558 course of business. This • Most commonly last
shareholder by dividend.
CA 2006 –confirms that obligation for a company to annual accounts to
E.g. 2 – Dividend in Specie
shares are deemed allotted maintain its share capital establish whether a
when a person acquires the mirrors the fact that the A company with an asset, is
it possible to transfer it to company has the requisite
unconditional right to be liability of the members is distributable reserves to
included in the companies limited. In essence its shareholders? It is a
make a distribution.
register of members in shareholder liability is dividend in specie. Transfer
Accounts must be properly
respect of those shares limited to any amount of property to shareholder.
prepared in accordance
• Issued share capital: not unpaid on their shares. E.g. 3 – Scrip Dividend with the provisions of the
defined in the act. Common -What the doctrine of share Top Co pays dividend, CA 2006
Law, when the allotment capital maintenance means through additional shares • Company may want to
has then been registered in is any money paid for to shareholders. Advantage pay dividends but most
the companies register of shares can only be returned is company retains cash. recent annual accounts
members. to the shareholders in Distributable Profits don’t justify this. Company
1- Step 1: ‘Allotment’ strictly controlled -Statute realized a profit on sale of
when the contract circumstances. Dividend can only be paid fixed asset which happened
is formed between • Enshrined in s.658 CA out of profits available for after the last annual
the shareholder 2006 distribution i.e. accounts. Need to have
and the company • Exceptions set out in specially prepared interim
Distributable profits “A
2- Step 2: ‘Issue’ s.659 CA 2006 accounts may be
company may only make a
when the shares appropriate. The interim
distribution out of profits
are written up in accounts must enable a
the companies available for the purpose” –
s830(1) CA 2006 reasonable judgement to
be made in respect of the
"...accumulated, realized
2021 ©

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