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ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital

Orion Ltd's directors want to raise capital by issuing shares at a discount to nominal value, and alternatively by issuing debentures at a discount to their face value. Under the general approach to company law, which statement is correct?

Shares cannot be issued at a discount to nominal value because of the capital maintenance rule, but debentures can be issued at a discount. Debentures are loans rather than share capital, and the company repays the full face value on redemption.

  1. ABoth shares and debentures may be issued at a discount without restriction
  2. BNeither shares nor debentures may be issued at a discount
  3. CShares may not be issued at a discount to nominal value, but debentures may be issued at a discountCorrect
  4. DShares may be issued at a discount, but debentures may not

Explanation

Capital maintenance requires shares to be paid up to at least nominal value, so a discount issue is prohibited. Debentures are loans, not capital, so they may be issued at a discount, with the company repaying the full face value on redemption.

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