Research on Capital Maintenance Doctrine

Question: Discuss about the Research on Capital Maintenance Doctrine. Answer: Introduction The Maintenance of Capital Doctrine stops the company from buying back its own shares. Maintenance of capital doctrine also made a rule that full amount of the shares is to be received by the company, also it is required that minimum amount of the money should be subscribed before the company commences its business. Moreover we can see that amount of share capital plays a very small role in decisions of lending. Maintenance of capital doctrine basically protects the creditors of the company and it also protects the shareholders of the company from the actions taken by the directors of the company or by the higher authorities the company. So that the long term investment made by the shareholders doesnt diminishes its value. Capital Doctrine Capital Doctrine stops the company to buy back its share because of one reason that is, if a company will buy back the shares then the company will not have to pay dividends to its shareholders and they wont be benefited by purchasing companys share. Maintenance of capital doctrine also helps the shareholders to limit their liabilities to the extent of their shares only; they are not liable for the excess money except their shares. If there is any extra liability over the company except the investment made by shareholders then its totally the liability of the company and they have to bear it on their own. Maintenance of capital doctrine was first time recognized from a case known as Trevor vs. Whitworth, in this case the court mentioned that the company in which shareholder has invested that company can only use the amount received by shareholders in companys trading. Further it was said in the case that company is not allowed to buy back its shares in any case. The maintenance of ca pital doctrine restricts the limited company from making payments to their creditors out of the capital money which they received from the shareholders. Shareholders money is only allowed for trading of the company, this increases the chances of getting dividends by the shareholders because the more investment made by company increases the chances of more profits. Maintenance of capital doctrine is also being developed from time to time. Maintenance of capital doctrine helps to build up the confidence of the investors as they know that their money will not be used to pay the debts to the creditors but they will be used in further investment to increase their capital. Maintenance of capital doctrine is followed by the Australians company too but there is an exception for them and they can buy back their shares in certain cases when required or when its needed Conclusion By stating the above statements and definition we can claim that capital doctrine is available to safeguard the interest of the investors who wants to invest in companies. This doctrine is still a part in Australian corporation law with few amendments. Bibliography Trevor v Whitworth (1887) 12 AC 409 Tomasic, R, The Rise and Fall of the Capital Maintenance Doctrine in Australian Corporate Law (2015) https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604018 Randall, C,Capital Maintenance(2008) https://www.nortonrosefulbright.com/knowledge/publications/17080/capital-maintenance-the-companies-act-2006 Hannigan, B, The doctrine of capital maintenance (2012). https://oxfordindex.oup.com/view/10.1093/he/9780199608027.003.0020