資本減少について知っておくべきすべてのこと

For long-term survival and better financial statements, a company sometimes needs to opt for capital restructuring wherein share capital of the company is changed, such as raising equity, shares repurchase, debt equity swap, bonus shares, shares split, etc.

One of these capital restructuring models is capital reduction. Under this scheme, the company reduces its share capital due to various reasons such as giving excess money back to shareholders, write off losses, regulatory compliance, etc.

This article carries out a detailed discussion of Capital Reduction.

1. What is capital reduction?

• Capital Reduction is a method wherein share capital of the company is reduced through different methods. Capital reduction is generally done by either paying the amount back to the share capital or through the cancellation of the shares.

• For example, a Company has equity share capital of INR 40 Crores (4 Crores shares of INR 10 each). Now, the company intends to reduce its share capital by INR 20 Crores. Through one of the methods, The Company can reduce the face value from INR 10/- to INR 5/-. In this case, the company is required to refund the differential amount to the shareholder after considering the balance of reserve & surplus attributable to share capital reduced.

• However, payment for reduced share capital can be done through funds transferred or through allotment of shares of some other class.

2. Reasons for Capital Reduction

Capital reduction is done to make a company's capital structure more efficient and to improvise the financial statement. Various reasons may cause a company to adopt capital reduction, such as:

1. Accumulated Losses: A Company having accumulated losses may opt for capital reduction to lower the accumulated losses in the financial statement. Reduced share capital and accumulated losses shall improve the financial ratios of the company.

2. Return excess funds to shareholders: In certain cases, the company has excess reserves and surplus. In such a case, the Company may opt to refund partial share capital to the shareholders to boost their confidence. In such cases, capital reduction through share buyback can be a way to return this excess capital to shareholders.

3. Improvised Financial Ratios: Financial ratios form integral parts of the financial statements and influence decisions of the company’s stakeholders. Share capital is used in determining various financial ratios. Therefore, a company may reduce share capital to improve financial ratios.

4. Corporate Restructuring: During mergers and acquisitions (M&A), demergers, and other forms of corporate restructuring, capital reduction might help realign the company structure.

5. Regulatory Compliance: A company may be required to reduce share capital due to regulatory or legal requirements like a change in the limit on the amount of distributable reserves a company can hold.

3. Recent Case Study of Capital Reduction

There have been various cases of capital reduction in the Industry. One of the recent cases of capital reduction was that of Tata Motors Limited. The Company had two classes of equity shares, namely “A” Ordinary Equity shares (Known as Tata Motor DVR) and Ordinary Equity shares (Known as Tata Motor). 

So, the Company carried out the capital reduction concerning Tata Motor DVR Shares. All the shares of Tata Motors DVR were called back by the company. In lieu of the case, the Company allotted shares of the Tata Motors. For every 10 shares of Tata Motor DVR, the Company allotted 7 shares of Tata Motors. The record date for the same was 1st September 2024.

4. Procedure for Capital Reduction

Capital Reduction is governed by Section 66 of the Companies Act, 2017. The company, limited by shares, can reduce the share capital in the following two manners, with prior approval of the National Company Law Tribunal (NCLT):

1. Extinguish or reduce the liability on the shares that are not fully paid-up, or
2. Cancel any paid up share capital which is lost or pay off any excess paid up share capital apart from extinguishing it.

To carry out capital reduction, a company is required to follow the steps below:

1. 取締役会を招集し、資本減少に関する決議を可決する。
2. 株主総会を開催し、資本減少を承認する特別決議を可決する。
3. 資本減少の手続きについて承認を得るため、NCLT（会社法審判所）に申請書を提出する必要がある。
4. 審判所は、申請書の提出から15日以内に、中央政府、会社の債権者、SEBI（上場企業の場合）などに対し、通知、指示、または意見表明を求める。
5. NCLTは、資本減少の手続きに関する意見や異議があるかを確認するため、7日以内に債権者へ通知を送付する。
6. 通知送付から3ヶ月以内に意見や異議を提出するものとし、回答がない場合は異議なしとみなされる。その後、NCLTはRSC-6の形式で資本減少の手続きを承認する。
7. 会社は、削減された資本金額、株式数、各株式の金額などを明記した審判所の命令の認証謄本と議事録を、30日以内に登記官に提出しなければならない。