8d Capital Maintenance Flashcards
What is the capital of the company referred to as and why must it be maintained?
The buffer fund for creditors. This must be maintained so that the company can’t return it to its members.
Is loan capital subject to capital maintenance rules?
No
What is the correct procedure to reduce share capital?
Both companies:
1. Pass a special resolution (>75% majority)
Public company:
2. Confirm through court providing no creditors affected wish to object.
Private company:
2. Directors provide solvency statement stating the company can meet its debts within 1 year.
All companies:
3. File an updated statement of capital within 15 days.
What is the redemption of shares?
The redemption of redeemable shares issued.
What is a purchase of own shares?
When a company buys back shares that were not issued as redeemable.
When can a company redeem their redeemable shares?
When they have been fully paid.
What are the rules surrounding redemption of redeemable shares?
- Articles of a public company authorise this.
- Must have some non-redeemable shares still in issue.
- Must be fully paid on redemption.
- Redeemed shares must be cancelled.
- Company must make a return to registrar within 1 month.
How can the redemption of redeemable shares be financed?
- Distributable profits: a transfer equivalent to the nominal value of redeemed shares must be made to the capital redemption reserve.
- The proceeds of a new issue.
- A permissible capital payment (Priv co. only) providing distributable profits and proceeds of new issue are insufficient.
What is a permissible capital payment?
Used by private companies only to make up the balance of funds needed.
- Cost of buy back - distributable profits available.
What conditions must be fulfilled by a private company to use a PCP to redeem shares?
- Director must provide a statement of insolvency.
- Special resolution by members to approve PCP within 1 week of insolvency statement.
- Public notice must be given within 1 week of members resolution to give creditors the opportunity to cancel resolution through court within 5 weeks of resolution.
- Payment must be made within 5-7 weeks of resolution.
- Copies of resolution and statement of capital should be filed at registrar.
When can a company buy back its own shares?
- Market purchase: purchase on the stock exchange.
- Off market purchase: purchase directly from shareholder.
When purchasing own shares by market purchase, what is required to do this?
Ordinary resolution stating max number of shares and max and min prices.
How long does the authority to purchase own shares by market purchase last?
Max 18 months.
What is required to purchase own shares by off market purchase?
Special resolution
When purchasing own shares by off market purchase, a contract of sale must be available for inspection by members after how many days?
15 days
When must a return for purchase of own shares be filed?
Within 28 days
What happens to shares that have been bought back?
Usually cancelled but can be held in treasury which can then be sold by the Director without authority of the existing members.
When can a public company give financial assistance to buy shares in that company?
For a permitted reason which doesn’t reduce the company’s net assets.
Can a private company provide financial assistance to buy shares in that company?
Only for a permitted reason
What is a permitted reason to give a company financial assistance to buy shares from that company?
- When the assistance is incidental to a different purpose.
- Company is a loan lending company.
- Shares are bought through an employee share scheme.
- Assistance is provided to an employee for them to purchase fully paid shares.
What isn’t deemed as financial assistance?
- Dividends
- Bonus shares
- Post liquidation payments to a shareholder
- Repurchase/redemption of shares
What happens if a company does provide financial assistance unlawfully?
Fine or up to two years in prison
