In this essay, I will critically evaluate the effectiveness of legal restrictions on distributions to shareholders in achieving "creditor protection". It consists of showing the good and the bad points of these restrictions. Firstly, I will define the terms used previously. Then, I will present the legal restrictions and finally, I will criticize the effectiveness of these legal restrictions. A shareholder retains a title representing a part of the capital of a company. A shareholder can be an individual or a company. He can have one or several shares. Additionally, he is one of the financial partners of the company and favors its economic development by the provision of its capitals. His catch of financial risk is remunerated by dividends poured by the firm to each of the owners of actions. "Shareholders are external users.
[...] In fact, it will permit to cancel losses of the company, repay the shares to shareholders and purchase own shares. Accordingly, the creditors will receive money from the company because of its funds that enable the company to pay them. To care for creditors, not all the profits can be distributed. Only the distributable profit according the definition before. As a result of this rule, unrealised profit can't be distributed, there is no difference between realised revenue and realised capital profits and all accumulated profits on the balance sheet date must be considered” ELLIOT and J ELLIOT p. [...]
[...] The effectiveness of legal restrictions on distributions to shareholders in achieving “Creditor Protection” In this essay, I will critically evaluate the effectiveness of legal restrictions on distributions to shareholders in achieving “creditor protection”. It consists of showing the good and the bad points of these restrictions. Firstly, I will define the terms used previously. Then, I will present the legal restrictions and finally, I will criticize the effectiveness of these legal restrictions. This part is dealing with the definition of the terms shareholders, distributions and creditor protection. [...]
[...] In the next part, the different legal restrictions putting into place to protect creditors will be described. To protect creditors, we have the capital maintenance concept. a general rule, the paid-in share capital is not repayable to the shareholders and the reserves are classified into two categories: distributable and non-distributable. The directors have discretion as to the amount of the distributable profits that they recommend for distribution as a dividend to shareholders. However, they have no discretion as to the treatment of the non-distributable funds. [...]
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