The following Corporate guidance note Produced in partnership with Tessa Park of Kingston Smith LLP provides comprehensive and up to date legal information covering:
It is a fundamental rule of English company law that a limited company having a share capital must maintain that capital. This capital maintenance rule is intended to protect a company’s creditors by ensuring that the assets representing the capital of a company remain available to them for future recourse.
A company’s share capital may be affected by certain events that occur over the course of its life in accordance with the provisions of the Companies Act 2006 (CA 2006). These could include:
the issue of shares, on incorporation and subsequently, including the issue of bonus shares
the redenomination of share capital
the sub-division and consolidation of shares
reductions of capital
share buybacks, and
the issue of redeemable shares and their ultimate redemption
This Practice Note looks, in brief, at the accounting treatment of each of these possible events in turn. It also looks at matters relating to distributable reserves, including the payment of dividends.
The legal requirements relating to the maintenance of, and changes to, the share capital of public companies are in some respects different from those relating to private limited companies, although there is generally no difference in the accounting treatment applied to changes in the share capital of each type of company. Also, the accounting treatment of many share capital events is identical under both FRS 102 (New UK GAAP)
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