A company may, for commercial reasons, wish to reduce its share capital. This process of reducing share capital will reduce a company’s shareholder equity. Some common reasons for doing so include:

  • Return to members the paid-up capital that the company no longer needs.
  • Simplify its capital structure to be more efficient.
  • Compensate shareholders who wish to cancel their shares in the company.
  • Allow the company to pay up dividends, buy back shares or generate funds to meet other corporate needs.
  • Eliminate losses which may be preventing the issue of dividends.
  • Reduce or cancel the company’s paid up or unpaid shares.
  • Cancel share capital that is no longer represented by available assets in the company.

A company may reduce its share capital by doing either of the following:

(a)    Seeking members’ approval.

(b)    Filing an Order of Court.

Members’ approval

Follow these steps if your company wants to reduce its share capital by seeking members’ approval.

1.    Pass a special resolution that is approved by the members.

2.    Company directors must make a solvency declaration which will be valid for 15 days for private companies or 22 days for public companies.

3.    Observe a period where creditors are given the opportunity to apply to the court if they object to the capital reduction. Creditors must submit their application within 6 weeks from the date the special resolution was passed.

4.    (If a creditor files an objection) The Court may make an order to cancel the resolution.

If there are no objections filed during the 6 weeks after the passing of the special resolution, you can proceed to file the “Reduction of Share Capital by Special Resolution under S78E” transaction via BizFile+.

The capital reduction takes effect once the transaction is successfully filed with ACRA.

Order of Court

Follow these steps if your company wants to reduce its share capital by filing an Order of Court.

1.    Pass a special resolution that is approved by the members.

2.    Apply for a court order to approve the reduction. If approved, you must file a “Notice of Court Order for Approval of Reduction of Share Capital by Special Resolution under section 78G” transaction within 90 days from the date of the Order.

The capital reduction takes effect once the filing is successfully filed with ACRA.

 

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