James and John are directors of ‘Cakes & Frozen Novelties Company Limited.’ Peter, Paul andDavid are shareholders. The company has been in operation for four years. The company has notmade any profits since its inception but James and John decided to declare dividends from thecompany’s capital reserves. The company has 10 million shares that were not distributed. Jameswent ahead and sold the shares to his wife, who is not currently a member of the company.Peter enquired as to whether or not the company can just purchase the shares issued, as there aremany different types of shares available. Paul noted that this is possible but pointed out thatRedeemable shares have particular features and certain procedures must be followed in order toredeem. He also stated three ways in which the company must finance these redeemable shares.James asked about the effect of the redeemable shares. John was puzzled and asked how acompany can redeem its share capital, especially when there is a minimum of $500,000 that mustbe maintained by the company. David intervened and explained that the reduction can be madethrough a number of ways but John only heard the term ‘statutory declaration.’ DEFINE the term Redemption of Share and STATE how a company can issueredeemable shares. What is the effect of redemption of shares? EVALUATE the ‘Capital Maintenance Doctrine’ using case law and say why it was firstimplemented.
James and John are directors of ‘Cakes & Frozen Novelties Company Limited.’ Peter, Paul and
David are shareholders. The company has been in operation for four years. The company has not
made any profits since its inception but James and John decided to declare dividends from the
company’s capital reserves. The company has 10 million shares that were not distributed. James
went ahead and sold the shares to his wife, who is not currently a member of the company.
Peter enquired as to whether or not the company can just purchase the shares issued, as there are
many different types of shares available. Paul noted that this is possible but pointed out that
Redeemable shares have particular features and certain procedures must be followed in order to
redeem. He also stated three ways in which the company must finance these redeemable shares.
James asked about the effect of the redeemable shares. John was puzzled and asked how a
company can redeem its share capital, especially when there is a minimum of $500,000 that must
be maintained by the company. David intervened and explained that the reduction can be made
through a number of ways but John only heard the term ‘statutory declaration.’
DEFINE the term Redemption of Share and STATE how a company can issue
redeemable shares.
What is the effect of redemption of shares?
EVALUATE the ‘Capital Maintenance Doctrine’ using case law and say why it was first
implemented.
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