Reducing a company’s share capital is a strategic decision that companies may undertake for various reasons. In Cyprus, this process is governed by the Companies Law, Cap. 113, and requires court approval, inter alia, to protect the interests of creditors and key stakeholders.
What is a Share Capital Reduction?
A share capital reduction allows a company to decrease its issued share capital. This can involve reducing the nominal value of shares, cancelling shares, or returning excess capital to shareholders. This process may also be applied to reduce any reserve created by the issuance of shares at a premium or to set-off as against accumulated losses.
Why Would a Cyprus Company Reduce Its Share Capital?
- Adjustments to a Company’s capital structure (such as cases of cancelling paid-up share capital that is not reflected in available assets)
- Cancel paid share capital to offset company losses
- Adjustments to financial records to reflect the company’s current position.
- Returning capital to shareholders.
How Can This Be Achieved?
The process of reducing the share capital of a Cyprus Company involves several steps and requires the approval of the Court. This is done to protect the interests of creditors, shareholders and affected stakeholders. The court will consider the commercial rationale of the reduction and the treatment of creditors and shareholders in this process.
As a first step, it is important to ensure that the Company’s Memorandum and Articles of Association provide for this possibility.
A share capital reduction is only effective once the relevant court order and accompanying shareholders’ resolution are filed with the Registrar of Companies in Cyprus.
Should you wish to find out more, contact our team at: info@paraschou.com.cy