Explain the Statutory and Common Law Rules that govern raising and maintenance of share capital of a company.

It is a fundamental principle of company law, that share capital be maintained. Company law has evolved principles and provisions to ensure that companies raise and maintain their capital for example:

• A public company may not commence business before the minimum subscription is raised.
• Consideration for shares must be in money or money‟s worth.
• A public company may not allot shares for non-cash consideration.
• Issuing of shares at a discount is in principal prohibited. Section 59 of the Act.
• If shares are issued at a premium, a share premium account must be created. Section 58 of the Act.
• Reduction of capital by a company must strictly comply with the provisions of the Companies Act.
• Preference shares should only be redeemed by reserves or proceeds of a special issue for that purpose.
• Dividend must not be paid out of capital. Article 16 of Table A.
• The par value of shares must be maintained.
• A company must not purchase its shares.
• A company must not finance the purchase or acquisition of its shares. Trevor V.Whitworth. This rule is embodied in Section 56 (1) of the Companies Act.

Leave a Reply

Your email address will not be published. Required fields are marked *