Doctrine of Capital Maintenance and Statutory Developments

Question: Discuss about the Doctrine of Capital Maintenance and Statutory Developments. Answer: Introduction: A no liability company is a public company under the corporations act and limited by the shares the corporations Act, 2001. The no liability companies mainly used in the mining and oil exploration. The organizational structures of no liability companies are differ in comparison of other type companies. In Australia, a company that is public limited company by the shares known as no liability company thus type companies can issue their shares to public[1]. If companies follow all the guidelines and meets all the predefined terms and condition of section 117 and 112(2) of the corporation Act 2001, then company may be registered. The section 117, 112(2) includes the various elements which are essential and followed by the companies. The section 112(2) describes that a company may be registered as no liability company if it has share capital, engage in mining activities, and if company has no contractual rights to recover the calls from the shareholders on shares[2]. At the same time, section 117 describes the application process of registration for the no liability companies and other companies. According to Corporations Act 2001, for the registration of company a person needs to fill a registration form with ASCI[3]. There is below an application form for the registration of a company as an Australian company: The maintenance of capital doctrine: The Doctrine of Capital Maintenance is the collection of the rules that help company in the management of capital. It is also fundamental principle of the company law that restricts the business enterprise to manage or maintain the share capital rather than distributing among the shareholders for the benefit and protection of creditors[4]. The doctrine of capital maintenance has specific procedure which should be followed for the management of share capital. The doctrine of capital maintenance is developed basically for the two reasons. The first reason is to protect the creditors interest and second is to ensure that company directors applied the share capital properly and lawfully. This fundamental principle of company law supports the rules and regulations related to dividend payment to companys shareholders and rules for the reduction in the companys share capital[5]. Along with this, the doctrine principal also developed to restrict the companies for the buying their own shares by the company. This principal of company law describes that a company or organization cannot purchase their own shares without follow the specific laws and procedure. At the same time, the doctrine principal also restrict that a subsidiary company cannot purchase the shares of its holding company. Further, it describes that a company cannot provide the financial assistance for the merger and acquisition activities for its parenting company. It is also required for the company that they distribute the dividend to companies shareholders from distributable profit. The notion or Doctrine of the capital maintenance was developed during the nineteenth century[6]. The main doctrine of capital maintenance was that the companys shareholders will collect their dividend after the payment of companies creditors. This principal or doctrine was reformed in year 1980 and it was replaced by the new principal or doctrine statutory procedure. In the year 1998, the doctrine of capital maintenance was relaxed for the some specific capital transactions through Ch2Js introduction. Under the section 257A-257J of Corporations Act 2001 the provisions related to buyback of shares was allowed in Australia[7]. It indicates that remain doctrine of capital maintenance are included in the company law and gives the foundation to company law in Australia. Through relaxation in the doctrine of capital maintenance the companies were allowed to reduce their share capital. According to Corporation Act 2001, it is required that companies should follow the rules and principals of the capital maintenance to protect the interest of shareholders and creditors. The doctrine of capital maintenance helps the company to make the payment or interest of the shareholders and lenders, and creditors. Furthermore, the maintenance of capital helps the companies to address the transaction which leads to company beside the insolvency that helps in reducing the business risk[8]. Along with this, the doctrine of capital maintenance helps the business organization to disclose that company follows the all requisite laws for the protection of shareholders interests. Through the corporation Act 2001, companies can reduce their share capital therefore it is required that company should follow the legal procedure and comply with related laws. References: CCA, (2010) CORPORATIONS ACT 2001 - SECT 112 [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s112.html (Accessed: 20 January 2017). CCA, (2010) CORPORATIONS ACT 2001 - SECT 117 [Online] Available at: https://www.austlii.edu.au/au/legis/cth/num_act/ca2001172/s117.html (Accessed: 20 January 2017). CCH (2010) Corporations Act 2001, ASIC Act 2001, related regulations, current as at 1 January 2010. AU: CCH Australia. CCH (2011) Australian Corporations Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations. AU: CCH Australia Limited. Dagwell, R., Wines, G. and Lambert, C. (2011) Corporate Accounting in Australia. AU: Pearson Higher Education. Islam, M.S., (2015) The Doctrine of Capital Maintenance and its Statutory Developments: An Analysis.Northern University Journal of Law,4, pp.47-55. Siems, M. and Cabrelli, D. (2013) Comparative Company Law: A Case-Based Approach. UK: Bloomsbury Publishing.