LW - Ch-14 , Capital Maintenance & Dividends Laws

What is the principle of capital maintenance?

• Companies should not make payments out of capital to the detriment of creditors

• Companies should seek to maintain or increase their capital at all times

• Companies should maintain the ratio of their debt and equity capital

Which of the following statements regarding reduction of capital is correct?

• A limited company requires a court order to cancel unissued shares

• A limited company requires a special resolution of its members to cancel unissued shares

• A limited company is permitted without restriction to cancel its unissued shares

Which of the following is required to permit a private company to reduce its share capital without application to a court?

• A special resolution only

• A special resolution and a solvency statement from the directors

• Authority in the articles and an ordinary resolution

Which of the following is required to permit a public company to reduce its share capital?

• A special resolution and a solvency statement from the directors

• A special resolution and court approval

• Authority in the articles and a special resolution

Which type of dividend is paid by the issue of additional shares?

• Scrip dividends

• Capital dividends

• Equity dividends

At which point before its payment does a dividend become a debt of the company?

• When it is declared by the company in general meeting

• When it is recorded in the financial statements

• When the company's bank receives the instruction to make the payment

Which of the following is an undistributable reserve for the payment of a dividend?

• Accumulated realised profits

• Retained earnings

• Capital redemption reserve

The rules of capital maintenance exist to primarily protect which of the following parties?

• A company's members

• A company's creditors

• A company's customers

• The government

Which of the following is NOT a valid method that a company may use to reduce its share capital according to the Companies Act 2006?

• Pay off part of paid-up share capital out of surplus profits

• Extinguish liability on partly paid shares

• Buy back fully paid up share capital from shareholders using cash not surplus profit

• Cancel paid-up share capital that is no longer represented by assets

Which TWO of the following are true concerning the issuing of a solvency statement by private companies in connection with a reduction of the company's share capital?

1. A solvency statement must be made 15 days in advance of the meeting where the special resolution concerning the reduction will be voted on

2. Only the Chairman and Finance Director of the company must be named on the statement

3. The statement must declare that there are no grounds to suspect the company will be unable to pay its debts for the next six months

4. It is an offence to make a solvency statement without reasonable grounds for the opinion expressed in it

• 1 & 2

• 1 & 4

• 3 & 4

• 1 & 3