Share Capital and Creditor Protection: Efficient Rules for a Modern Company Law

This article examines the case for rules of company law which regulate the raising and maintenance of share capital by companies. The enquiry has practical relevance because the content of company law is currently under review, and the rules relating to share capital have been singled out for particular attention. The existing rules, which apply generally, are commonly rationalised as a means of protecting corporate creditors. The analysis considers whether such rules can be understood as responses to failures in the markets for corporate credit. It suggests that whilst the current rules are unlikely, on the whole, to be justified in terms of efficiency, a case may be made for a framework within which companies may ‘opt in’ to customised restrictions on dealings in their share capital.