Under Section 56 (1) of the Companies Act, it is generally unlawful for a company whether directly or indirectly and whether by means of a loan, guarantee or the provision of security to give any financial for the subscription or purchase of its shares or those of its holding subsidiary.
- This section exemplifies the rule in Trevor v Whitworth. However, a company may lawfully finance the purchaser or acquisition of its shares in the following circumstances:
- Where lending of money is part of the ordinary business of the company and the same is lent in the ordinary course of business.
- Where the company enforces a scheme to advance loans to trustees to enable them to purchase its fully paid shares for the benefit of its employees including salaried directors.
- Where the company has in force a scheme to advance loans to all its bona fide employees other than directors to enable them purchase its fully paid shares by way of beneficial ownership.
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Non-compliance with this section renders the company and every officer in default liable to a fine not exceeding KShs.20, 000.
marto answered the question on February 6, 2019 at 06:39
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