Reduction of Share Capital
Corporate Secretary
Share capital reduction is the process of decreasing the amount of a company’s shareholder equity, and you can perform it through share cancellations and share repurchases.
After a share capital reduction, the number of shares in you company will decline by the amount involved in the reduction.
While your company’s market capitalization will not change due to a share capital reduction, the number of shares outstanding and allowed to be traded will be reduced.
Reasons Why You Might Reduce the Share Capital in your Singapore Company
If you own a company in Singapore, you might be faced with the decision to reduce the share capital due to some specific reason and scenarios which may warrant such a move. There are multiple reasons why a company might want to reduce its share capital, such as:
- To leverage Debt/Equity Ratio.
- To convert your share capital into debentures or bonds.
- To compensate your shareholders after they cancelled their shares.
- To reduce or cancel your company’s paid up shares or unpaid up shares.
- To allow your company to pay up on dividends, buy back shares or generate funds.
You must ensure that the any of your cited reasons comply with the Section 78A of the Company Act of Singapore. As long as the citation complies, you can execute the reduction with or without a court’s approval. Either way, your company’s director and shareholders must make and file a special resolution which is restricted by the company’s memorandum.
How to Reduce Your Company’s Share Capital?
Currently, there are 2 ways to obtain approval to reduce share capital. It is important to note that the Accounting and Corporate Regulatory Authority (ACRA) does not charge any fees for both processes.
- Reducing Capital with the Court-approval Method
- Reducing Capital without Court Approval
Reducing Capital with the Court-approval Method
You need to take up the below actions to reduce the share capital of your company successfully with approval from court.
- The company must pass a special resolution through a general meeting and lodge the special resolution with ACRA.
- The company must ensure that all creditors have consented to the reduction in share capital and that they are not adversely affected by the reduction.
- The company can then apply to the court to approve the resolution and the capital reduction.
- Once the court has approved the reduction, the company must file a copy of the court order and a notice containing the capital reduction with ACRA. This must be done within 90 days of the approval.
- The company can then edit its shareholding according to the approved capital reduction.
Reducing Capital without Court Approval
You need to take up the below actions to reduce the share capital of your company successfully without approval from court:
- The company must pass a special resolution through a general meeting and lodge the special resolution with ACRA.
- The board of directors will need to make a solvency statement stating that the company can repay its debts in the next 12 months. It a director makes such a statement without any justification, he or she may be criminally liable. This statement can be made within 20 days before the passing of the special resolution.
- The special resolution and solvency statement must be made publically available for inspection.
- If the lodgement of capital reduction is approved, the information lodged will be made publically available for up to 1 months after the reduction.
The choice between a court-approved or non-court approved capital reduction is the decision of the company’s. Most companies prefer the court-approved method as it is final and more difficult for someone to file an objection. Also, the company directors will not need to make a solvency statement, thus reducing their potential liability.
How Can Tianlong Services Help You?
Tianlong Services is a professional accounting and secretarial firm and a registered ACRA filing agent for company incorporation, lodgement of annual return and filing of changes and updates of company particulars, officers and shareholders.
Contact us today if you need help with Reduction of Share Capital of your Singapore Company.
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