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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Delmar Traders Ltd, a private company, wants to issue its shares at a price below their nominal value to raise funds quickly from a new investor. Which statement correctly describes the general legal position?

The issue is prohibited. Shares cannot generally be allotted below nominal value, because the nominal amount forms part of the capital protected for creditors. Member approval does not change this, and the rule covers private as well as public companies.

  1. AThe issue is allowed if the members approve it by ordinary resolution
  2. BThe issue is prohibited because shares cannot generally be allotted at a discount to nominal valueCorrect
  3. CThe issue is allowed for private companies but not for public companies

Explanation

The general rule is that shares may not be issued at a discount to nominal value, as this would undermine the capital maintained as a fund for creditors. If a discount is nevertheless given, the allottee is liable to pay the shortfall. Member approval cannot override the rule, and it applies to private companies as well as public ones.

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