10 
SECRETARIAL PRACTICE 
shares; he has become a member of the company, and remains 
so with a liability to pay the amount unpaid on his shares 
[Railway Time-Table Publishing Co., ex parte Sandys (1880), 
42 Ch. D. 8]. 
Shares may be issued at a premium without any special 
authority, and there is nothing to prevent the premium 
being treated as profits; usually, however, it is employed 
as capital, or used to create a reserve fund. If premiums 
were distributed as dividends in cash a claim might be made 
against the shareholders for income tax on the amount 
distributed. While the validity of such a claim is questionable, 
it is better to avoid any risk of its being upheld. No such 
claim can be made if the premiums are applied in paying up 
other shares which are distributed on a capitalisation of 
profits. 
A company may not purchase its own shares [Trevor v. 
Whitworth (1887), 12 A.C. 409]. A power in that behalf 
reserved by the articles would be void, and so, it would 
appear, would such a power in the memorandum (same case). 
If a company purchases its own shares, it reduces its capital 
in a manner not authorised by the Act. 
Prohibition It is illegal under the Act of 1929 (see s. 45) for a company to 
of financial give directly or indirectly, any financial assistance for the 
asslstance 2 purpose of or in connection with a purchase made or to be 
purchase of Made by any person of any shares in the company unless (i) 
its own lending money is part of the ordinary business of the company 
shares. and the loan is made in the ordinary course of business or 
(ii) the loan is made in the manner indicated in the section in 
connection with a profit-sharing scheme to enable the em- 
ployees of the company to participate in its profits, or (iii) 
the loan is made to employees of the company, other than 
directors, to enable them to purchase fully-paid shares to be 
held by themselves in bona fide ownership. The effect of this 
section on transactions entered into before the coming into 
force of the Act is not quite clear, but it would appear that if 
in any case a loan repayable on demand had been granted 
before the commencement of the Act which would have been 
unlawful if made after that date and the borrower had not at 
the commencement of the Act completed the purchase, the 
company ought at once to call the loan in. In any event the 
section seems to prohibit the rendering by a company after the 
commencement of the Act of any financial assistance to enable 
a person to repay a loan obtained by such person before the 
commencement of the Act to enable him to purchase shares of 
the company.