Reduction of Share Capital

The Companies Act 2006 has introduced a new way for private limited companies to reduce the amount of their share capital which eases the procedures to be taken. It enables a private company limited by shares to reduce its capital by special resolution supported by a Solvency Statement made by the directors. This is an alternative to reducing share capital by special resolution with court approval and so in appropriate cases the reduction supported by a Solvency Statement is likely to be a simpler and cheaper option for the company.

The share capital can be reduced in any way provided that it has some issued share other than redeemable shares after the reduction.

There are three options:

  1. Repay any paid-up share capital in excess of its requirements.
  2. Cancel any paid-up share capital that is lost or unrepresented by available assets.
  3. Extinguish or reduce the liability on any of its shares in respect of share capital not paid up.
  1. To give effect to the reduction the Solvency Statement must be made not more than 15 days before the date of the special resolution and must be available to the shareholders when they vote on the resolution to reduce the company's share capital.
    The Statement must also:
    • Be in writing;
    • Indicate that it is a Statement for the purposes of Section 642 of the Companies Act 2006;
    • Be signed by each of the directors.
  2. In forming the opinions contained in the Solvency Statement, the directors must take into account all of the company's liabilities (including contingent or prospective liabilities). The directors commit an offence if they make a solvency statement without having reasonable grounds for the opinions expressed in it and the statement is delivered to the Registrar of Companies.

NOTE: There is a requirement that the Articles of Association refer to the class shares and their respective rights in relation to Dividends, Voting and Capital, we generally therefore arrange for replacement Articles of Association to be filed at Companies House, such Articles also being compliant with the Companies Act 2006.