The Doctrine of Capital Maintenance Samples †MyAssignmenthelp.com

Question: Discuss about the Doctrine of Capital Maintenance. Answer: The capital maintenance doctrine is the basic principal regulation orlaw of corporate law. It establishes the principals where a company must receive proper consideration for the shares and the amount of capital must paid to the members only who are shareholders as per the legislature. The company keeps the capital for the safety of the company creditors. The court assists for confirming that the share capital is using lawfully for buying the share for the company only (Bainbridge 2015). The doctrine was briefly describes in the landmark case Trevor v Whitworth (1887) where the House of Lords stated that a company could not keep its own shares, because it would decrease the capital of the company. This is also stated such affects that the members might not receive any capital without a deduction in capital as authorized by the court (Ferran Ho 2014). In the Flitcrofts Case, Jessel M.R. mentioned the above-mentioned essential features of the doctrine. It describes the essential attributes: a company has no rights to buy its own shares. Shareholders of a company are bound to the payments of dividends shares. It is restricted from providing any financial support to buy its own shares. Therefore, the doctrine also outlines the legal rules relating to the deduction in the company reserves or share capital. In Australia, the Capital Maintenance doctrine has contained in the Australian corporatelaw under section 256A, 256 C of the Corporations Act 2001. The provision duty of this act is to protect the interest of the creditors and the shareholders and ensuring fair dealings between them. Section 256 C of the Act stipulates that the share capital of a company can be redeemed provided the shareholders approve it and it does not hinder the ability of the company to make payments to them (Hamermesh 2014). In the sec 256C of the Corporation Act stated that the capital amount of share profit of the company must be decrease when the shareholder allows the capital amount. In 256B of the Corporation Act stated the exceptions of doctrines where company can reduce the share capital and the sec 257A allow the company to buy its own shares but there are some terms and conditions applied (Hannigan 2014). The exceptions applicable to the doctrine under section 256 B allow the company to reduce share capital of the company and section 257 A permits the company to buy back its own shares. The introduction of more transparent and effective capital system has outweighed the outdated capital system. It make sure the better protection to the creditors as it provides impartial and more accurate information to the creditors that allows the creditors to evaluate the capability of the company to pay debts. Reference Bainbridge, S. (2015).Corporate Law. West Academic. Ferran, E., Ho, L. C. (2014).Principles of corporate finance law. Oxford University Press. Hamermesh, L. A. (2014). Consent in Corporate Law. Hannigan, B. (2015).Company law. Oxford University Press, USA. Kawano, L. (2014). The dividend clientele hypothesis: Evidence from the 2003 tax act.American Economic Journal: Economic Policy,6(1), 114-136. Lazonick, W. (2014). Profits without prosperity.Harvard Business Review,92(9), 46-55. Levy, A. B. (2013).Private corporations and their control(Vol. 11). Routledge. Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., Burrow, M. (2015).Financial management: Principles and applications. Pearson Higher Education AU.