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Chapter 8
Capital maintenance
Purpose
The capital of a limited company is regarded as a ‘buffer fund’ for creditors. This
doesn’t mean that the creditors can withdraw funds from the share capital directly.
Note that the creditors’ buffer is an accounting fund, not real money. The actual cash
or assets subscribed can be used by the company.
The rules on maintenance of capital exist in order to prevent a company reducing its
capital by returning it to its members, whether directly or indirectly. A member of the
company cannot simply withdraw their capital from the company
Loan capital is not subject to the maintenance rules.
Reduction of capital
Under s.641, a company can reduce its share capital provided that any reduction
does not result in only redeemable shares being left in issue.
A reduction in share capital must follow the correct procedure as discussed below.
Such a reduction reduces the members’ liability to the company.
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