Maintenance of capital

The Companies Act 2006 (CA 2006) defines 'share' in relation to a company as a ‘share in the company's share capital'.

A company's share capital is the total number of shares of a fixed nominal value issued by it to investors on or after the company’s incorporation: those investors then become the company’s shareholders. A company’s shareholders accept a liability to contribute sums to the company, when called to do so, such liability being capped at an amount equal to the nominal value of the shares they hold.

Share capital and its maintenance

It is a fundamental rule of English company law that a limited company having a share capital must maintain that capital; a company must not reduce it or return it to shareholders, except as prescribed by law. This capital maintenance rule is intended to protect a company’s creditors by ensuring that the assets that represent the share capital of a company remain available to them for future recourse. It underlies many of the CA 2006 provisions relating to share capital, including the requirements and restrictions relating to:

•
the nominal value of shares
•
payment for shares
•
distributions

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