Explain the Statutory and Common Law Rules that govern raising and maintenance of share capital of a company.
ANSWER
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.
• If shares are issued at a premium, a share premium account must be created.
• Reduction of capital a company must strictly comply with the provisions of the Companies Act.
• Preference shares should only be redeemed reserves or proceeds of a special issue for that purpose.
• Dividend must not be paid out of capital.
• 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 the Companies Act.