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If company issues share certificate, it must: Receive at least as much value for it as the nominal value of the share
Issued share capital = fund to which creditors look for payment of debts. Therefore, capital must actually be raised. (Amount of issued capital is yardstick of companys worth.)
NOT provide the finance for the purchase of its own shares Not LOSE the value once received. Profits derived from using issued share capital may be distributed to shareholders, but the capital itself must be maintained.
Maintenance Rules
Object = protection of authorized and issued capital from dilution and reduction. While the rules cannot protect capital from economic realities, they protect capital in that they restrict the ways it may be used.
Redemption/Repurchase amounts to a reduction of share capital, which contravenes Trevor v Whitworth and Companies Ordinance provisions regarding maintenance.
Acatos & Hutcheson plc v Watson (1995): company can acquire another company (X Co) where the sole asset of X Co is shares in acquiring company. Court will not lift corporate veil to look at commercial realities. BUT: Directors of acquiring company must act with an eye solely to the interests of the acquiring company and have fulfilled fiduciary duties to safeguard interests of shareholders and creditors.
Reduction of Capital
Requires: (i) authorization from AOA, (ii) special resolution, and (iii) usually court approval.