ACCA Applied Skills · Corporate and Business Law (Global)
Share Capital for ACCA Applied Skills Corporate and Business Law
Share capital is the money a company raises by issuing shares, and the law controls how shares are issued, changed, reduced and paid back. To solve questions, identify the action (allotment, buyback, dividend), find the rule and its condition, check who must approve it, then apply it to the facts.
What this chapter covers
This chapter covers how a company raises money from members and the legal limits on what it can do with that money. You study the types of shares, how directors issue them, how existing members are protected, how rights can be changed, and how capital is kept in the company for creditors.
The chapter is rule-based. Most questions give a short scenario and ask what is allowed, who must approve, or what the result is. The Global variant tests general principles, so learn the rules in plain words and the conditions attached to each one.
It links to other parts of the paper. Company formation and constitution explain why share rights sit in the articles. Directors' powers explain why authority to allot matters. Later chapters on insolvency and the position of creditors build on the idea that capital is a fund protected for those who deal with the company.
Share capital gives you many short, testable rules, and objective questions on rules are marked all or nothing, so precision pays. In Section A you may meet single rules such as who must approve a buyback. In Section B, a multi-task scenario may combine allotment, pre-emption and dividends in one question. Once you know the conditions, these are reliable marks. The topics also overlap with FR and FM, so the effort has value beyond this exam.
Share capital: topics in the order to study them
- 1Types of Share Capital and Classes of SharesStart here because every later rule uses these terms, such as ordinary and preference shares, and issued and paid-up capital.
- 2Allotment of Shares and Directors' AuthorityNext, learn how shares are issued and what authority directors need, since this is the basic share transaction.
- 3Pre-emption RightsThis follows allotment because it limits how directors may offer new shares and protects existing members.
- 4Variation of Class RightsOnce you know the classes and how they are issued, you can study how their rights are changed and who must consent.
- 5Alteration of Share CapitalThis covers changes such as consolidating or splitting shares, and is easier after you understand classes and rights.
- 6Maintenance of Capital and Reduction of CapitalLearn the capital maintenance principle before its exceptions, as buybacks and dividends are tested against it.
- 7Share Buybacks and Redemption of SharesThese are the main ways a company returns capital to members, so they come after the maintenance principle they must respect.
- 8Dividends and DistributionsFinish with distributions, which draw on the capital rules and the idea of distributable profits.
How to prepare Share capital
Treat this chapter as a set of rules, each with a condition and an approver. Build a one-page map, then test yourself with scenarios.
- Read each topic once and write the rule in one plain sentence, including its condition.
- For every action, note who approves it: directors, members by ordinary or special resolution, class members, or the court.
- Make a short table of terms on paper: authorised, issued, paid-up, called-up and uncalled capital, with the meaning of each.
- Compare similar rules side by side, such as buyback versus reduction, and dividend versus return of capital.
- Practise objective questions by topic, then mixed scenarios, and explain why each wrong option fails.
- Practise multi-task scenarios by spotting each legal issue in the facts and answering it with the rule and a one-line application.
- In the last week, retest only the rules you got wrong and the approval requirements.
Common mistakes in Share capital
Confusing issued, paid-up and authorised capital.
Fix: Tie each term to a stage: permitted, then allotted, then actually paid. Check which one the question asks about.
Forgetting that directors need authority before allotting shares.
Fix: When you see an allotment, ask first whether authority exists and from whom.
Applying pre-emption rights to every issue of shares.
Fix: Check the type of consideration and the class of shares in the facts before applying the rule.
Mixing up reduction of capital and buyback.
Fix: Treat them as separate routes, each with its own approval and funding rules.
Treating dividends as payable whenever the company has cash.
Fix: Test the dividend against distributable profits, not against the bank balance.
Naming the wrong approver for a decision.
Fix: For every rule, write the approver beside it in your notes and revise that column last.
Last-day revision: Share capital
- Share capital is raised from members and is a fund that creditors can rely on.
- Issued capital is what has been allotted; paid-up is what has actually been paid.
- Preference shares rank ahead for dividends only to the extent the articles say.
- Directors need authority to allot shares, given by the constitution or by the members.
- Pre-emption rights let existing members be offered new shares for cash first, in proportion to their holdings.
- Pre-emption rights can be excluded only in the ways the law and the constitution allow.
- Class rights can be varied only as the constitution or the law provides, usually with class consent.
- Capital must not be returned to members except by lawful routes such as reduction or buyback.
- A reduction of capital needs member approval and, depending on the route, solvency support or court sanction.
- Buybacks must follow set conditions on approval and funding, and must not leave the company insolvent.
- Dividends may be paid only from distributable profits.
- An unlawful distribution can be recoverable from members who knew or should have known it was unlawful.
Share capital practice questions
- Orchid plc has 1,000,000 shares of $1 each, issued and fully paid. It has accumulated losses and wishes to reduce capital by cancelling $300…
- Lumen Ltd has accumulated losses and wants to reduce its share capital to write off part of the loss, with no cash returned to shareholders.…
- Brightwell Ltd's directors want to issue shares for cash without offering them to existing members first. Under the standard company law mod…
- Karim Ltd, a company, wishes to issue new ordinary shares for cash. Existing members hold shares in proportion to their holdings. Under the …
- Marlow Co has 100,000 ordinary shares in issue. Anita holds 20,000 of them. Marlow proposes to issue 50,000 new ordinary shares for cash, an…
- Birch Co has 100,000 ordinary shares of $2 each in issue, fully paid. The members pass an ordinary resolution, permitted by the articles, to…
- Which of the following is a feature of redeemable shares?
- Altair Co has distributable profits and wishes to buy back some of its own shares from a shareholder. Which statement best describes the acc…
Share capital in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Share capital: frequently asked questions
Is share capital a large topic in ACCA LW?
It is a core topic with many short rules, and it can appear in both Section A and the multi-task Section B. Learn it well because the rules are precise and easy to test.
Do I need to memorise section numbers for share capital?
For the Global variant, focus on the principles in plain words rather than section numbers. Know the rule, its condition and who must approve.
What is the best order to study share capital?
Start with share types, then allotment and pre-emption, then class rights and alterations. Finish with capital maintenance, buybacks and dividends, since these rely on the earlier ideas.
How do I handle share capital scenario questions?
Identify the action in the facts, such as an allotment or dividend. Then state the rule with its condition, name who must approve, and apply it to the facts in one line.