Capital Maintenance

Capital Maintenance

Introduction

The fundamental issue of the companies of the European Union is the restriction of the accounting-based profit distribution. There are various challenges for the capital maintenance and law enforcement. The economic analysis, const-benefit comparison and legal implications dissertate on this discussion. This paper discusses about the principal objectives of the capital maintenance. It also proposes the academic literature on the protection of credit. The concept of capital buffer zone for the prevention of asset stripping has also been discussed in detail. It extends with the critical analysis and argumentative knowledge on both concepts. This will help to determine whether these concepts are mutually exclusive or are in support of each other. The insolvency of European companies and the adaptation of solvency declaration are key outcomes for the epitome of this study. The merits and demerits of solvency declaration are briefly discussed to gauge the concept of capital maintenance for the overall efficacy of the organization. The secondary sources and academic journals are used to devise the assumptions. 'Creditor versus Capital Formation: The Case Against the European Capital Rules' is the recommended literature for the discussion. OSCOLA System is a law resource that has been used for quoting this assignment.

Discussion

Principal Objectives

Capital Maintenance is concerned with the difference in the return on capital and the return of capital of the enterprise. Financial and physical capital maintenance is two basic foundations to understand this accounting and legal principle. The debatable concept of capital maintenance is based on the implication of International Financial Reporting Standards (IFRS). It entails that the earned profit is recorded if the operational capacity of enterprise exceeds the beginning capacity of the financial period. This definition is mutually exclusive of the contributions and distributions from the owners.

The enterprises of the United States of America and Europe have different approaches towards the accumulation of legal capital. This conflict of interest has benefited the enterprise of European Union despite of the inefficiencies. Capital maintenance is the subject of economic framework for the power allocation between creditors and other equity claimants (Carney, 1997). This theoretical knowledge provides following realistic valuation of both markets:

The capital markets of the United States are more vigorous and robust than capital markets of the Europe.

The capacity of financing high risk firms is higher in United States than the Europe.

Creditor Protection

The economic efficiency is not enough for the legal consideration of capital maintenance in the enterprises of the European Unions. It is necessary to analyze and implement the provisions in accordance with the Article 11 of the Second Directives (Blackburn, 1994). Following are three variables in consideration:

The first shortcoming is that the creditors do not get protection from the legal capital doctrines. There is a measurable difference for the amount of minimal capital requirement for different nature of the companies. The minimal capital requirement for the highly leveraged company for the transportation of radioactive waste is entirely different for the design software.

There is an independent means of protection for the ...