financial assistance

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The provision of funds etc. by a company to enable a person to acquire shares in that company. Such assistance is unlawful where it is in contravention of sections 678(1) and 679(1) of the Companies Act 2006. Section 678(1) provides that where a person is acquiring shares in a public company, it is not lawful for that company to give financial assistance directly or indirectly for the purposes of the acquisition before, during, or after the acquisition. Section 679(1) provides a similar prohibition in relation to a public company that is a subsidiary of a private holding company. There are, however, exceptions. These include where the company lends money in the ordinary course of business, e.g. where a bank customer borrows money to buy shares in the bank, or where the financial assistance is authorized by some other provision of company law, e.g. for the purpose of an employees' share scheme. The most significant exception, however, is contained in section 678(2) of the Companies Act, which states that a public company can give such assistance where this is an incidental part of some larger purpose of the company and it is given in good faith in the interests of the company.

Subjects: Law.

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