Commentary Part 17: a Company’s Share Capital Chapter 10: Reduction of Share Capital
948.Section 135 of the 1985 Act lays down a statutory procedure under which a limited company may, if authorised by its articles, reduce its share capital. This requires a special resolution of the company’s members and the reduction must be confirmed by the court. Companies limited by shares may also reduce their share capital under section 171 (private company redemption or purchase of own shares out of capital) and sections 146 to 147 of the 1985 Act (which require a public company which acquires shares in any of the specified ways, for example, through forfeiture for failure to pay up, to cancel those shares within a specified period), the provisions of both of which are carried forward by the Act. A reduction of capital may also occur as a result of the court making an order for the purchase by a company of its members’ shares.
949.A company may wish to reduce its share capital for a variety of reasons, for example, where its capital is in excess of the company’s wants or where the value of the company’s net assets has fallen below the amount of its capital (as stated in the company’s accounts) and the position is likely to be permanent.