Capital Reduction

Introduction

In English company law, capital maintenance rules require the share capital of a company to be preserved. These rules stem from a cardinal principle of law which that is that the share capital of a company limited by shares belongs to the company and not its shareholders. This provides protection to the company's creditors as the share capital should prevent any unpaid debts. In practice, and in spite of this principle, companies tend to utilise capital reduction as a means to achieve certain objectives such as mergers and acquisitions or the payment of dividends to its shareholders. However, capital maintenance rules still affect capital reduction and its requirements