"Maintenance of share capital", to what extent and what are the legal justification

Company must maintain its share capital as a source of payment to creditors and shareholders' expectations that capital will be used for the object of the company. Common law and statue provide some rule regarding maintenance of share capital, they are:

1. Company cannot make gratuitous allotment of shares, shares must be paid in full by shareholders.

2. Shares cannot be issued at a discount. - Ooregum Gold Mining Co of India v. Roper

3. According to section 67(1) ,company cannot provide financial assistance to buy shares unless it falls under the exceptions of section 67(2)-(beneficial ownership, lending money is the ordinary course of business, employee share scheme)

4. According to section 67(1), company cannot purchase its own shares unless:

a) it is a redeemable shares

b) it is share buyback for listed company, provided that provisions in section 67A are complied.

5. Subsidiary company cannot hold shares in holding company.

6. Dividends can only be paid out of distributable profits.

7. Dividends cannot be paid out of capital.

7. Company cannot reduce share capital unless section 64 is complied with.