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

Zeta Ltd has 100,000 issued ordinary shares of $1 each. Its members wish to consolidate them into 50,000 shares of $2 each. Under the general company law approach in the LW Global syllabus, what is the effect of such a consolidation on the company's issued share capital?

Issued share capital remains $100,000. A consolidation merges shares into fewer shares of higher nominal value, so 50,000 shares at $2 equal the former 100,000 shares at $1. No capital is returned to members, so the total is unaffected.

  1. AIssued share capital is halved to $50,000 because there are fewer shares
  2. BIssued share capital is unchanged at $100,000 because only the nominal value and number of shares changeCorrect
  3. CIssued share capital is doubled to $200,000 because each share has a higher nominal value
  4. DIssued share capital is reduced and a capital redemption reserve must be created

Explanation

Consolidation replaces several shares with fewer shares of higher nominal value: 100,000 x $1 = $100,000 and 50,000 x $2 = $100,000. Total capital is unchanged, so no capital is returned and no reserve arises. Halving the capital wrongly counts only the share number.

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