What is a key restriction on public companies regarding distributions?

Public companies face stringent regulations concerning the distribution of profits to ensure financial stability and protect creditor interests. The key restriction is that they may not make distributions if doing so would cause their net assets to fall below the sum of their share capital and any distributable reserves. This rule is designed to maintain adequate financial health and accountability, preventing companies from putting their solvency at risk by distributing too much of their profits.

In practice, this means that before a public company declares a dividend or any other type of distribution, it must assess its net assets to confirm that it remains compliant with this requirement. Net assets refer to the total assets minus total liabilities, and this calculation is crucial to ensure that the company holds sufficient financial resources to meet its obligations. If a distribution were to reduce net assets below the level of share capital and distributable reserves, it could jeopardize the company's ability to fulfill its financial commitments to creditors.

Other options present different scenarios that do not accurately reflect the legal framework governing distributions for public companies. For instance, the requirement for equal distribution is not a standard practice as distributions often vary based on shareholder agreements and company performance. Also, shareholder approval does not grant carte blanche for distributions if they contravene statutory requirements. Lastly, while maintaining cash balance