This chapter explores the principles and legal framework of capital maintenance within the European Union’s company law. It examines rules designed to protect creditors and ensure corporate solvency by regulating distributions, reductions and increases of a company’s capital. The chapter analyses key EU directives, national implementations and relevant case law, highlighting the balance between safeguarding financial stability and enabling business flexibility. It also discusses challenges in harmonizing capital maintenance rules across Member States and the impact of recent reforms on corporate governance. The chapter offers insights into how capital maintenance shapes corporate accountability and investor protection in the EU.

In 1962, John F. Kennedy proposed withholding for taxes on dividends and interest to close the large gap between dividends and interest paid and reported. Despite the familiarity with wage withholding, the proposal encountered an enormous wave of public opposition, generating one of the most significant letter-writing campaign ever mounted. Congress relented and stripped the dividend and interest withholding provision from the bill in favor of new information reporting requirements. Why did dividend and interest withholding generate such a populist revolt? In part, the populism on this issue was manufactured by the business community. Banks and corporations mobilized their depositors and investors to contact their congressmen to protest the proposal. This is only part of the story, however. The industry-led campaign struck a chord with taxpayers who had become disaffected by the special tax preferences and shelters enjoyed by high bracket taxpayers. They viewed omitting dividends and interest as their form of self-help, while others were indignant that Congress would attack tax evasion by going after them before solving high-end tax evasion first.

In this chapter, we examine the law relating to corporate finance, focusing on how companies raise capital by issues shares or taking on debt. We examine the nature of share finance (including different types of shares), the different forms of debt finance (including debentures), and the nature of security interests. We consider share capital transactions including dividends, alterations and reduction of capital, share buy-backs and financial assistance transactions. This area of corporate law uses specific terminology. We define these terms in the text, noting that other sources, such as legal and business glossaries, may also assist.

Companies are one of the most common forms of legal entity. They are popular business and investment vehicles and are also used for many other purposes. ASIC’s website indicates that there were 3,241,836 registered companies in Australia as at July 2023. While some of these have only one member, others have many thousands of members. Many large companies are listed on stock exchanges around the world, and their shares are traded daily. At the time of writing, the largest company listed on the Australian Securities Exchange (‘ASX’) was the mining company, BHP Group, which had a market capitalisation of around $230 billion. Companies make up the majority of Australia’s largest taxpayers. Traditionally, Australia has relied heavily on corporate taxation for its tax revenue, and it has one of the highest corporate tax-to-GDP ratios in the OECD. This chapter examines how the tax law applies to companies and their members (eg shareholders). Special taxation rules apply to certain companies, such as PDFs, life insurers, co-operatives, listed investment companies and corporate collective investment vehicles. A separate taxation regime also applies to companies that are members of a consolidated group.

This chapter critically examines the fifth and last criterion of the proposed framework for social enterprise law, namely, distribution of dividends and assets, and allocation of tax benefits. I assess how restrictions on the distribution of dividends and assets can ensure that the pursuit of social benefit is not subordinated to that of profit-making by analyzing the CIC regulations. I argue that these restrictions in themselves do not necessarily ensure that the pursuit of social benefit is prioritized over profit-making. Under my criterion, it is argued that directors should be required to issue a report specifying whether and how they have complied with the corporate purpose, among other requirements. In addition, they should be required to engage in a critically self-reflexive process on how they measure impact based on the proposed three-step framework. I also argue that because investors need to be incentivized to invest in social enterprises and given that a central challenge facing social enterprises in Asia is poor access to funding, I consider how tax law can be used to incentivize investments from shareholders.

The plaintiffs, John and Horace Dodge, owned a ten percent share in the defendant’s, Ford Motor Company (FMC), corporation. The Dodge brothers had recently started their own car company, but the Dodge Brothers retained interest in FMC, which had paid hefty dividends. Henry Ford very publicly decided to stop paying dividends to investors and to build a new plant in River Rouge, Michigan, which would drive competition for lower priced vehicles. The Dodge brothers filed this suit in response. The case highlights the debate over the fundamental purpose of business: investor benefit or societal benefit. Through the lens of feminist theory, Ford’s approach would promote both the financial interests of FMC and the equitable access to private transportation to the betterment of society. By withholding dividends, FMC could maintain a cash reserve in times of financial adversity; meanwhile, by driving down the price of cars, private transportation could be more widely available to even the most marginalized groups who were more likely to experience harassment on public transportation. The feminist perspective argues that the notion that a corporation’s only purpose being to immediately maximize profits for the sake of stockholders is too narrow a view.

Here we study a fairly general jump–diffusion price process. We investigate the existence of equivalent martingale meaures, derive the Hansen–Jagannathan bounds, and extend the theory to include dividends. Completeness questions are discussed in some detail, and we also develop the theory for change of numeraire.

In Chapter 5, the treatment of portfolio investment was examined. For inbound dividends, the general principle is that shareholders (corporate or non-corporate) receiving foreign-sourced dividends should be treated the same way as shareholders receiving domestic dividends if they are in an objectively comparable situation, unless different treatment is justified. If the country of residence of the shareholder (the home State) chooses to provide reliefs for domestic dividends, then it must provide the same reliefs at least for EU-sourced dividends. The fact that economic double taxation is suffered because another State has imposed corporation tax on the underlying profits generating the dividends is not a relevant consideration. It has been found that a home State is not obliged to give to shareholders a credit for foreign withholding taxes, irrespective of whether it gives such credit for domestic withholding taxes. Recent cases were reviewed, some of which explored the equivalence of the credit and exemption methods in this context. Case law on the taxation of outbound dividends was very similar but with some subtle differences. This chapter also examined the payment of interest.

This chapter contains an introduction to financial economics, giving the reader the necessary background for the rest of the text. It coversportfolio theory, arbitrage theory, martingale measures, change of numeraire, stochastic discount factors, Hansen–Jagannathan bounds, dividends and consumption.

In this chapter, we examine the law relating to corporate finance, focusing on share and debt finance. We examine the nature of share finance (including different types of shares), the different forms of debt finance (including debentures), and the nature of security interests. We consider share capital transactions including dividends, alterations and reduction of capital, share buy-backs and financial assistance transactions. This area of corporate law uses some specific terminology. We define these terms in the text; other sources, such as legal and business glossaries, may also assist.