Skip to content

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

Zelta Co, a private company, wishes to reduce its share capital by cancelling shares that are not fully paid up, in order to remove an accumulated loss from its books. Its articles do not prohibit a reduction. Under the general approach in company law, which of the following is the necessary basis for the reduction?

A reduction of share capital needs a special resolution of the members, plus whatever court confirmation or directors' solvency statement the applicable law requires. The board cannot do it alone, and merely notifying the registrar does not authorise it, because creditors and members must be protected.

  1. AA special resolution of the members, together with any court or solvency confirmation that the applicable law requiresCorrect
  2. BA simple majority of the directors at a board meeting, with no member approval
  3. CA written notice to the registrar, with no resolution of members needed

Explanation

A reduction of share capital alters the capital shown in the constitution and affects creditors, so it needs a special resolution of members. Many jurisdictions also require court confirmation or a solvency statement from the directors as a protection. A board decision alone is insufficient, and notice to the registrar without a member resolution does not authorise a 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