Reducing Share Capital By A Company: An Overview

It is a fundamental principle of Bermuda company law that the share capital of a company should be maintained.

However, a company limited by shares is free to reduce its share capital by a resolution of its members provided that the reduction is not prohibited by its Memorandum of Association and Bye-Laws and the company complies with the procedures set out in the Companies Act 1981, as amended (the Act).

Today, I will provide an overview of the ways in which a company can reduce its share capital under the Act, why a company might wish to effect a reduction and the procedure involved.

Companies limited by shares can reduce their share capital in one of three ways:

• extinguish or reduce the liability on any of its shares in respect of capital not paid up;