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Maintenance Of Share Capital Notes

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Core Module: BLP Paper A

Company Law - Private Limited Companies Maintenance of share capital Principle of MSC

Capital must be maintained, as it is the fund to which the creditors look for paymen of debts owed to them. Paid up shares must not be returned to its shareholders, and their liability in respect of capital not paid up on shares must not be reduced. Unauthorised return of capital to shareholders is ultra vires.

Consequences:

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Company cannot purchase their own shares Company must not return capital to its members Dividends must only be paid out of distributable profits and NOT o of capital.

S.658: a limited company must not generally purchase its own shares. It is offence committed by the company and all its officers. Penalties set out.

General principle: Cannot buy back from Shareholders wishing to give back their investment. SH must sell on to other investors. Capital must be available for credito Exceptions

1. 2.

3. 4.

Buying back shares - S.690 Redeem its own shares - S.684 - 689 Reduce share capital with consent of court - S.645- 651. Solvency statement - S.41 - 644

Exception 1: Buying back shares by the company

9.5 [GURU notes for procedure]

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S.690: grants directors the power to buy back shares. Check articles is there anything restricting S.690?
S.706(b)(i): brought back shares are treated as cancelled. Shares ceas to exist. i.e. return of money to the SH - the company received nothing of financial value in return. Shares immediately become worthless. Director's must consider whether it makes commercial sense to buy back shares - consider their duties [S.172]

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Procedure of buy-back: (off-market shares) -

1. Buy back out of PROFIT

2. Buy back out of CAPITAL Buy back out of profit

1 1. Checks:

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S.690(1): articles of the company must not forbid this

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S.691(1): shares must be fully paid; and

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S.691(2): when shares are bought by the company, it must pay for them at the time of purchase

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