page_title: United Kingdom company law
section_title: Capital regulations
hierarchical_section_title: United Kingdom company law / Companies and the general law / Capital regulations
caption_attribution_description: Deutsch: FT 30/FTSE 100 (aus gestartet 2. Januar 1984) Index von Dezember 1969 bis Oktober 2012 (tägliche Schlusskurse) English: FT 30/FTSE 100 (started from 2 January 1984) Index from December 1969 to October 2012 (daily closings)
context_page_description: The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary legal vehicle to organise and run business. Tracing their modern history to the late Industrial Revolution, public companies now employ more people and generate more of wealth in the United Kingdom economy than any other form of organisation. The United Kingdom was the first country to draft modern corporation statutes, where through a simple registration procedure any investors could incorporate, limit liability to their commercial creditors in the event of business insolvency, and where management was delegated to a centralised board of directors. An influential model within Europe, the Commonwealth and as an international standard setter, UK law has always given people broad freedom to design the internal company rules, so long as the mandatory minimum rights of investors under its legislation are complied with.
  Company law, or corporate law, can be broken down into two main fields, corporate governance and corporate finance.
context_section_description: Because limited liability generally prevents shareholders, directors or employees from being sued, the Companies Acts have sought to regulate the company's use of its capital in at least four ways. "Capital" refers to the economic value of a company's assets, such as money, buildings, or equipment. First, and most controversially, the Companies Act 2006 section 761, following the EU's Second Company Law Directive, requires that when a public company begins to trade, it has a minimum of £50,000 promised to be paid up by the shareholders. After that, the capital can be spent. This is a largely irrelevant sum for almost any public company, and although the first Companies Acts required it, since 1862 there has been no similar provision for a private company. Nevertheless, a number of EU member states kept minimum capital rules for their private companies, until recently. In 1999, in Centros Ltd v Erhvervs- og Selskabsstyrelsen the European Court of Justice held that a Danish minimum capital rule for private companies was a disproportionate infringement of the right of establishment for businesses in the EU. A UK private limited company was refused registration by the Danish authorities, but it was held that the refusal was unlawful because the minimum capital rules did not proportionately achieve the aim of protecting creditors. Less restrictive means could achieve the same goal, such as allowing creditors to contract for guarantees. This led a large number of businesses in countries with minimum capital rules, like France and Germany, to begin incorporating as a UK "Ltd". France abolished its minimum capital requirement for the SARL in 2003, and Germany created a form of GmbH without minimum capital in 2008. However, while the Second Company Law Directive is not amended, the rules remain in place for public companies.
  The second measures, which originally came from the common law but also went into the Second Company Law Directive, were to regulate what was paid for shares. Initial subscribers to a memorandum for public companies must buy their shares with cash, though afterwards it is possible to give a company services or assets in return for shares. The problem was whether the services or assets accepted were in fact as valuable to the company as the cash share price otherwise would be. At common law, In re Wragg Ltd said that any exchange that was "honestly and not colourably" agreed to, between the company and the purchaser of shares, would be presumed legitimate. Later on it was also held that if the assets given were probably understood by both parties to have been insufficient, then this would count as a "colourable" taint, and the shares could be treated as being not properly paid for. The shareholder would have to pay again. This laissez faire approach was changed for public companies. Shares cannot be issued in return for services that will only be provided at a later date. Shares can be issued in return for assets, but a public company must pay for an independent valuation. There are also absolute limits to what a share can be bought for in cash, based on a share's "nominal value" or "par value". This refers to a figure chosen by a company when it begins to sell shares, and it can be anything from 1 penny up to the market price. UK law always required that some nominal value be set, because it was thought that a lower limit of some kind should be in place for how much shares could be sold, even though this very figure was chosen by the company itself. Every share, therefore, is still required to have a nominal value and shares cannot be sold at a price lower. In practice this has meant companies always set nominal values so low below the issue price, that the actual market price at which a share ends up being traded is very unlikely to plummet so far. This has led to the criticism for at least 60 years that the rule is useless and best abolished.
  The third, and practically most important strategy for creditor protection, was to require that dividends and other returns to shareholders could only be made, general
caption: The FTSE 100 Index, here between 1969 and 2013, indicates value that traders in the stock market perceive the UK's top 100 companies to have, given the dividends they will pay out. Dividends can only be paid on profits above a company's "legal capital": the initial total shareholders contributed when they bought their shares.
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