Exceptions of merger accounting, Business Law and Ethics

Exceptions of Merger accounting:

S.56 (1) permits a company to give financial assistance for a purchase of, or subscription for, its shares in the following circumstances:

a)      Where the lending of money is part of the ordinary business of the company and the money is lent by the company in the ordinary course of its business. In Steen v Law (52) the Privy Council explained that this provision does not validate a loan given for the express purpose of enabling the loanee to purchase the lending company's shares. This is so because no company can be constituted for the sole purpose of lending money to persons who would be buying its shares so that a loan it gives for any other purpose would be regarded as an "unusual" or "extraordinary", loan. To be valid, therefore, the loan must have been given for one of the purpose for which the company ordinarily or usually lends money but was diverted (wholly or partly) to a purchase of the lending company's shares.

b)      Where the loan is to trustees to enable them to purchase fully paid shares in the company to be held under an employees' share scheme.

c)       Where the loan is to employees' (other than directors) to enable them to purchase or subscribe for fully-paid shares in the company or its holding company to be held by themselves by way of beneficial ownership. If a company gives a loan to an employee to purchase shares in the company the employee must have the shares registered in his own name and not the name of a spouse or child. This is intended to induce the employee to be more motivated and productive by ensuring that he personally and directly reaps the fruits of his increased productivity.

Posted Date: 1/12/2013 4:23:53 AM | Location : United States

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