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

Orion Ltd lends money to Priya, who uses it to buy shares in Orion Ltd. The company's directors argue the loan is lawful because the company's principal purpose was to benefit its business by retaining Priya as a key employee. Under a typical exception applying where the assistance is only incidental to a larger purpose, what must be shown?

The company must show that the main purpose was not the share purchase, or that the assistance was incidental to a larger purpose, and that it was given in good faith in the company's interests. Discounts or later notice to shareholders do not satisfy the exception.

  1. AThat the shares were bought at a discount to market value
  2. BThat the main purpose was not to give the assistance for the share purchase, or it was an incidental part of a larger purpose, and was given in good faith in the company's interestsCorrect
  3. CThat all shareholders were informed after the loan was made

Explanation

The usual 'larger purpose' exception requires that the assistance was not given mainly for the share acquisition, or that it was incidental to a larger company purpose, and that it was given in good faith in the company's interests. Price and later notification are not the test.

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