Maintenance of Capital

Maintenance of Capital in United Kingdom

Financial assistance for purchase of its own shares (ss677–683)

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General prohibition on public companies giving financial assistance

Breach of the prohibition

Exceptions

The principal or larger purpose exception

Territorial effect

Reduction of Company’s Capital under s642

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To extinguish or reduce liability on partly paid shares

To cancel paid-up share capital which has been lost or is not represented by available assets

To pay off part of the paid-up share capital out of surplus assets

How to effect a reduction

Redemption and buy-back of shares

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Redemption of shares

How is redemption effected?

Consequences of redemption

Purchase by a company of its own shares (buy-back)

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Methods of purchase

Consequences of buy-back

Maintenance of Company’s Capital: The share premium account

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Maintenance of Company’s Capital: The distributable profits rule

Maintenance of Company’s Capital: Bonus (capitalisation) issues

Regulating the adequacy of the consideration obtained for shares on allotment

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Non-cash consideration

Paying for the shares out of capital

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Procedure to be followed for payment out of capital

Buy-back of shares

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Purchase by a company of its own shares (buy-back)

Serious loss of capital by a public company: s656