corporate law
Question 1
(1) The maintenance of share capital principle is share capital. Share capital is the contribution made by shareholder by subscribing shares of the company. A company’s creditors can only look to the share capital for payment in the event of a winding up.
A general rule known as the rule in Trevor v Whitworth was established in order to protect shareholders and creditors. It prohibits a company from reducing its share capital due to a reduction in capital would prejudice the rights of creditors. Besides, the reduction would in effect diminish the pool of funds available to the company to pay its creditors.
The rule in Trevor v Whitworth has been incorporated into the Corporation Act. There are certain section that can be use in order to enforce the maintenance of capital principle.
Section 254T of the Corporation Act stated that a dividend may only be paid from profits. This section states that a company must not pay a dividend unless the company’s assets exceed its liabilities before the dividend is declared and the excess is sufficient for the payment of the dividend.
Another section in the Corporation Act which seek to enforce the maintenance of capital principle is Section 259A: Prohibit self-acquisition. A company is not allowed to directly acquire its own shares unless is by means of a share buy back in accordance with Section 257A: The Company’s power to buy back its own shares.
In addition, Section 259B prohibits a company from taking security over its shares or the shares of the company which controls it. Section 259C also provides that the issue or transfer of shares of a company to an entity it controls is void.
(2) Ordinary shares are the most common type of shares. An ordinary share gives the holder voting rights in the company and entitles the person to all dividend distributions as a part-owner of the company. Besides, the dividend on ordinary shares is uncertain and variable , it all depends on the performance of the company.
(1) The maintenance of share capital principle is share capital. Share capital is the contribution made by shareholder by subscribing shares of the company. A company’s creditors can only look to the share capital for payment in the event of a winding up.
A general rule known as the rule in Trevor v Whitworth was established in order to protect shareholders and creditors. It prohibits a company from reducing its share capital due to a reduction in capital would prejudice the rights of creditors. Besides, the reduction would in effect diminish the pool of funds available to the company to pay its creditors.
The rule in Trevor v Whitworth has been incorporated into the Corporation Act. There are certain section that can be use in order to enforce the maintenance of capital principle.
Section 254T of the Corporation Act stated that a dividend may only be paid from profits. This section states that a company must not pay a dividend unless the company’s assets exceed its liabilities before the dividend is declared and the excess is sufficient for the payment of the dividend.
Another section in the Corporation Act which seek to enforce the maintenance of capital principle is Section 259A: Prohibit self-acquisition. A company is not allowed to directly acquire its own shares unless is by means of a share buy back in accordance with Section 257A: The Company’s power to buy back its own shares.
In addition, Section 259B prohibits a company from taking security over its shares or the shares of the company which controls it. Section 259C also provides that the issue or transfer of shares of a company to an entity it controls is void.
(2) Ordinary shares are the most common type of shares. An ordinary share gives the holder voting rights in the company and entitles the person to all dividend distributions as a part-owner of the company. Besides, the dividend on ordinary shares is uncertain and variable , it all depends on the performance of the company.