Capital Maintenance

Capital maintenance


The share capital of a limited company is regarded as a buffer fund for creditors. (Note that the creditors' buffer is an accounting fund, not real money. The actual cash or assets subscribed can be used by the company.)

The rules on maintenance of capital exist in order to prevent a company reducing its capital by returning it to its members, whether directly or indirectly. This means that, as a general rule, a limited company cannot reduce its share capital. There is, however, an exception to this general rule which is discussed below.

Reduction of capital

Under S641 CA06, a company can reduce its capital at any time, for any reason.

  • Reduce or cancel liabilities on partly-paid shares, i.e. the company gives up any claim for money owing.
  • Return capital in excess of the company's needs, i.e. the company reduces its assets by repaying cash to its shareholders.
  • Cancel the paid-up capital that is no longer represented by the assets, i.e. if the company has a debit balance on reserves it can write this off by reducing capital and thereby does not need to make good past losses.
Procedure for public companies:
Procedure for private companies:

Treasury shares


These are created when a public company purchases its own shares from distributable profits. The shares do not have to be cancelled. Up to 10% of the shares can be held 'in treasury' which means they can be re-issued without the usual formalities.

General Rule

Shares which are purchased by a company must be cancelled and the amount of the company's share capital account reduced by the nominal value of the cancelled shares.


Under S724 CA 2006, companies listed on the Stock Exchange or the Alternative Investment Market can buy, hold and resell their shares. The shares must be qualifying shares which are shares listed on the London Stock Exchange or traded on the Alternative Investment Market. The shares must be purchased from distributable profits and the company can cancel or sell them at any time.

Under S726 CA 2006 the shares will not give the company any voting rights in respect of those shares. In addition, no dividend or other form of distribution can be made in respect of them.

Any consideration received on a sale of treasury shares is to be treated as profits for distribution purposes.

Under S729 CA 2006, in the event the shares are cancelled, there will be a reduction in capital but there is no need for a special resolution of the members or authorisation by the court.

S730 CA 2006 states that where treasury shares are cancelled, the company must deliver a return to the Registrar not later than 28 days after the shares are cancelled. The return must state with respect to shares of each class cancelled:

  • the number and nominal value of the shares, and
  • the date on which they were cancelled.

The notice must be accompanied by a statement of capital which must state with respect to the company's share capital immediately following the cancellation:

  1. the total number of shares of the company,
  2. the aggregate nominal value of those shares,
  3. for each class of shares:
    1. prescribed particulars of the rights attached to the shares,
    2. the total number of shares of that class, and
    3. the aggregate nominal value of shares of that class, and
  4. the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium).
  5. Treasury shares can also be created when a company initially issues shares to the public but keeps a portion in its treasury to be sold at a later date.

    Created at 8/21/2012 12:12 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
    Last modified at 11/14/2012 3:24 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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