It is a fundamental principle of company law that the share capital of a company must be maintained.
Discuss the legal consequences of this principle
ANSWER
The principle has the following consequences:
• A company cannot purchase its own shares.
• A company must not give financial assistance for the purchase of its own shares.
• Dividends must not be paid except out of distributable profits.
• Where a public company suffers a serious loss of capital a meeting of the company must be called to discuss the issue.
• Shares must not be issued at a discount.
• Reduction of capital must strictly comply with the provisions of the Companies Act.