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Corporate law - Case Study Example
Where company shares are redeemed or purchased wholly out of a company's profits, the amount by which the company's issued share capital is reduced on cancellation of the shares which are redeemed or purchased or on cancellation of shares held as treasury shares must be transferred to the capital redemption reserve (CRR).2 If the shares are redeemed or purchased from the proceeds of a fresh issue and the total amount of those proceeds is less than the total nominal value of the shares redeemed or purchased, the difference in amount must be transferred to the CRR…
The exception to this is that the reserve may be applied by the company in paying up its unissued shares which are to be allotted to company members as fully paid bonus shares.
Further, if the permissible capital payment exceeds the nominal amount of the shares redeemed or purchased, the amount of any capital redemption reserve, share premium account or fully paid share capital of the company, and any amount representing unrealised profits of the company for the time being standing to the credit of any revaluation reserve, may be reduced by a sum not exceeding, or by sums not in the aggregate exceeding, the amount by which the permissible capital payment exceeds the nominal value of the shares.4
Where, however, the proceeds of a fresh issue are applied by a company in making any redemption or purchase of its own shares in addition to a payment from its capital under these provisions, the references to the permissible capital payment are to be read as referring to the total amount of that payment and those proceeds.
The CRR is mainly used to ens ...