Maintenance of capital - raising of capital, Business Law and Ethics

Maintenance Of Capital:

The issued share capital of a company limited by shares is the primary security for the company's creditors. In Re: Exchange Banking Co (Flitcroft's Case) Jessel, M.R. stated: "A limited company by its memorandum of association declares that its capital is to be applied for the purpose of the business. Therefore it cannot reduce its capital except in the manner and with the safeguards provided by statute... One reason is this-there is a statement that the capital shall be applied for the purposes of the business, and on the faith of that statement, that is sometimes said to be an implied contract with creditors, people dealing with the company give it credit. The creditor has no debtor but which impalpable thing the corporation that has no property except the assets of the business. The creditor, Hence I may say that gives credit to that capital and gives credit to the company on the faith of the representation that the capital shall be applied only for the purposes of the business also..."

Posted Date: 1/12/2013 3:16:46 AM | Location : United States

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