This article explores the process of the Reduction of Share Capital.
What is Reduction of Share Capital?
A reduction of share capital is a process where a company decreases its issued share
capital. This can be done for various strategic, financial, or legal reasons and must
comply with company law (Companies Act 2006).
In a private company limited by shares, capital can be reduced through one of two
ways: either by passing a special resolution supported by a solvency statement, or by
passing a special resolution that is then confirmed by the court.
This article focuses on the process of reducing share capital by passing a special
resolution supported by a solvency statement.
Under the Companies Act 2006, a private company may reduce its issued share capital
if all directors confirm, via a solvency statement, that the company can meet its debts
over the next 12 months.
To register the reduction of capital with Companies House, the following actions are
required:
• A special resolution must be passed.
• The solvency statement must be made within 15 days before the resolution.
• These documents, along with a statement of capital and other required filings,
must be submitted to Companies House.
The reduction takes effect once Companies House registers a copy of the solvency
statement, resolution, and statement of capital.
| Please note that a company cannot reduce its capital if it would result in only redeemable shares remaining in issue. |
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