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

Zeta Co, a private company, wishes to help a buyer who is purchasing Zeta Co's own shares by lending the buyer the purchase price. Under the Global variant approach to company law, what is the central concern behind rules restricting this kind of financial assistance?

The concern is that company resources may be used to fund the purchase of the company's own shares, which can reduce the assets available to creditors and unfairly affect minority shareholders. The rules protect capital and prevent controllers misusing company funds.

  1. AThe company's resources could be used to fund the acquisition of its own shares, harming creditors and minority shareholdersCorrect
  2. BThe company would be unable to issue any further shares in future
  3. CThe buyer would automatically become a director of the company

Explanation

Financial assistance rules exist because using company funds to finance a purchase of its own shares can deplete assets, prejudice creditors and allow controllers to misuse company money. The other options describe consequences that do not follow from such assistance.

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