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ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Nolan Ltd, a private company, reduces its share capital by a valid procedure and obtains authority. Which of the following is a consequence of a lawful reduction of capital?

A lawful reduction of capital can reduce or extinguish shareholders' liability for unpaid amounts on their shares, cancel lost capital or repay capital. It reduces the issued share capital. It does not create a dividend entitlement or require a name change.

  1. AShareholders' liability on any uncalled amount may be reduced or extinguished to the extent of the reductionCorrect
  2. BShareholders are automatically entitled to a dividend equal to the reduction
  3. CThe company must change its name
  4. DThe reduction has no effect on the company's issued share capital

Explanation

A reduction can extinguish or reduce liability on partly paid shares, cancel paid-up capital, or repay capital. It reduces issued capital by definition and brings no automatic dividend entitlement or name change.

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