Companies Act 2014 section 123

Meaning of "distribution", "capitalisation", etc., and supplemental provisions

Section 123 defines the key terms "distribution" and "capitalisation" for the purposes of the rules on distributions, and sets out supplemental provisions relating to profits, losses, and distributions of non-cash assets.

• A "distribution" covers every type of transfer of company assets to members, whether in cash or otherwise, but specifically excludes bonus share issues, share redemptions or buy-backs funded by fresh share issues, asset distributions on winding up, and certain capital reductions.
• "Capitalisation" means using profits to pay up unissued shares for allotment to members as bonus shares, or transferring profits to undenominated capital.
• References to profits and losses include both revenue and capital profits and losses, and other legal rules or constitutional provisions that further restrict distributions are not overridden by this Part.
• Where a company distributes a non-cash asset, any unrealised profit included in the financial statement value of that asset is treated as a realised profit for the purpose of testing whether the distribution is lawful.