Skip to content

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

Ridgeway Ltd reduces its share capital by cancelling $100,000 of the nominal value of its ordinary shares. Shareholders had paid in full. Which describes a lawful form of this reduction?

A lawful reduction can return the cancelled paid-up capital to shareholders once the statutory procedure is followed. Paying it to directors would be an improper distribution, and keeping it in share capital would not be a reduction at all.

  1. AReturning the $100,000 to shareholders after following the statutory reduction procedureCorrect
  2. BPaying the $100,000 to the directors as a bonus
  3. CKeeping the cancelled amount in the share capital account but issuing new shares for it

Explanation

A company may cancel paid-up capital and return it to members, provided the statutory procedure is followed. Paying the amount to directors is an unauthorised distribution, and retaining it in capital contradicts the reduction.

Did you get it right without looking?

One question tells you little. A timed set on Capital maintenance and dividend law shows your real accuracy, how long you take and where you lose marks.

Practise Capital maintenance and dividend lawFree diagnostic mock

More Capital maintenance and dividend law questions