A concept which came from the previous Companies Act and its doctrine of Capital Preservation. Money raised by a company as a result of issuing shares to the public was protected by the Companies Act from being distributed in the form of dividends. The general rule was that companies may only pay dividends out of profits, and not out of the money that was put into the company to set it up. The new Companies Act (71 of 2008) which came into effect in May 2011 has a new doctrine of “Solvency and Liquidity” and requires a solvency and liquidity test to be undertaken before dividends can be paid.

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