The doctrine of capital maintenance states that company should take proper consideration for the issued share capital in the market from the shareholders. However, company must not repay this amount to shareholders until and unless special exceptional circumstance arises. The origin of doctrine of capital maintenance can be two fold. Firstly, it will start with protecting the interest of creditors and shareholders and another is to ensure the legal dissipation of all the assets of the company. Nonetheless, it is worth considering that doctrine of capital maintenance has been developed through a serious judicial Interpretation in company law cases in England. In the case of Jessel M. R It was held that company has to take care of two aspects. Firstly, creditors have right to see that capital is not dissipated unlawfully (Dr. M. Zahir, 2007). On the other side, company has to check that shareholders of the company would not be paid until and unless all the payment to creditors and other borrowers have been made. It is evaluated that these two aspects of doctrine of capital maintenance is governed by two rules capital reduction ad company distribution. There are several benefits of doctrine of capital maintenance to shareholders and creditors and company itself. Creditors take benefits of doctrine of capital maintenance by taking their money from the company on priority basis. On the other hand, shareholders are the owners of company and remained silent till the time when all the debts of the company are paid fully. There are several exceptions of doctrine of capital maintenance such as redemption and repurchase of shares (Patakyová and Grambli?ková, 2016). However, purchase of own shares by company is forbidden but there are several circumstances in which they are allowed. Nonetheless, as per the 256B, 257B, 260A and 259A should be followed to comply with the method of reducing the capital of company. In addition to these requirements, company should also state in its MOA and AOA for the provision of capital reduction. If there is no provision then alteration of Article of Association and Memorandum of association is required. Now in the end, it would be inferred that doctrine of capital maintenance provides several policies and measures that should be taken proper care and consideration for the issued share capital in the market from the shareholders by the company (Islam, 2015).
References
Dr. M. Zahir, 2007, Company and Securities Laws, First published in 2000, the University Press Limited, Dhaka, p.50
Islam, M.S., 2015. The Doctrine of Capital Maintenance and its Statutory Developments: An Analysis. Northern University Journal of Law, 4, pp.47-55.
Patakyová, M. and Grambli?ková, B., 2016.Capital Doctrine In The European Union–a Lesson To Learn From Finland?. The Lawyer Quarterly, 6(3).
