Reduction of capital—a quick guide
Produced in partnership with Christopher Field of Dechert LLP
Reduction of capital—a quick guide

The following Corporate guidance note Produced in partnership with Christopher Field of Dechert LLP provides comprehensive and up to date legal information covering:

  • Reduction of capital—a quick guide
  • Reasons for a reduction of capital
  • Ways to reduce a company’s capital
  • Court procedure vs solvency statement procedure
  • Reduction of capital—procedure

It is a fundamental rule of English company law that a limited company having a share capital must maintain that capital. Therefore, a company must not reduce its share capital, except as prescribed by law. This capital maintenance rule is intended to protect a company’s creditors by ensuring that the assets representing the share capital of a company remain available to them for future recourse.

Under the Companies Act 2006 (CA 2006), a limited company having a share capital may reduce its capital by:

  1. a redemption of its shares, in accordance with the rights attaching to them and CA 2006, Pt 18, Ch 3

  2. a purchase of its own shares in accordance with CA 2006, Pt 18, Ch 4, if that purchase is followed by a cancellation of those shares

  3. an acquisition of its own shares otherwise than for valuable consideration or a purchase of own shares in pursuance of a court order referred to in CA 2006, s 659(2)(b), if that acquisition or purchase is followed by a cancellation of those shares

  4. a reduction of capital in connection with a redenomination under CA 2006, s 626

  5. a cancellation of shares by a public company in accordance with CA 2006, s 662

  6. the forfeiture of shares, or the acceptance of shares surrendered in lieu, in pursuance of the company's articles of association,

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