Reduction of Share Capital
For business reasons, a company may wish to reduce its share capital. The process of reducing capital stock will reduce a company's shareholder equity. Some common reasons for doing this include:
Return to members paid-up capital no longer needed by the company.
Simplify capital structure to improve efficiency.
To compensate shareholders who wish to cancel their shares in the company.
Allows a company to pay dividends, buy back shares, or raise funds to meet other corporate needs.
Eliminate losses that could prevent dividend payments.
Reduction or cancellation of fully paid or unpaid shares of a company.
Cancellation of share capital that is no longer represented by the company's available assets.
Nature of reduction
Extinguish / Reduce the liability of any of its shares not paid up
Cancel any paid up capital which is lost or unrepresented by available asset
Return to shareholders any paid up capital which is more than company needs
A company can reduce its share capital in any of the following ways:
(a) Seek members' approval
(b) File a court order.
Members' Approval
If your company wishes to reduce its share capital by seeking member approval, please follow the steps below.
1. Adopt a Special Resolution for Reduction of Share Capital and obtain the consent of the members.
2. The directors of the company must make a declaration of solvency, which is valid for 20 days for private companies and 30 days for public companies.
3. Comply with a period of time during which creditors will have the opportunity to apply to the court if they object to the capital reduction. Creditors must submit their application within six weeks from the date of the passing of the special resolution.
4. (If creditors object) The court may order the resolution to be canceled.
If no objection is raised within 6 weeks after the special resolution is passed, you can submit the "Reduction of Share Capital by Special Resolution under S78E" transaction through BizFile+.
The capital reduction will be effective once the transaction is successfully registered with ACRA.
Court Order
If your company wishes to reduce its share capital by filing a court order, please follow the steps below.
1. Adopt a special resolution and obtain the consent of the members.
2. Apply for a court order authorizing the reduction. If approved, you must file a "Notice of Court Order for Approval of Reduction of Share Capital by Special Resolution under section 78G" within 90 days of the date of the order.
The capital reduction will be effective upon successful filing with ACRA.
Reduction of Share Capital by Special Resolution under S78E
Special Resolution filed by company under S186
What information is required to complete this transaction?
1. Unique Entity Number (UEN)
2. Copy of Special Resolution
3. Statement of Directors
4. Solvency Statement
Solvency Statement under Section 78E(1)(b)(ii)(A)
How long will it take to file/process this transaction?
After submission of this transaction, the share capital and shareholding information will be updated immediately.
Please note the following:
1. Special Resolution on the reduction of share capital must be submitted at least 6 weeks prior to filing this transaction and;
2. Publication for Proposed Reduction of Share Capital under Section 78B/C should be submitted the same day as the Notice of Special Resolution or within 8 days after passing the Special Resolution.
3. The share capital and the shareholdings will be updated immediately after the submission of this transaction.
Publication for Proposed Reduction of Share Capital under Section 78B/C
What is the purpose of this transaction?
1. Allows the company to notify on the proposed reduction of share capital and update the share capital after the reduction for publication.
What information is required to complete this transaction?
1. Unique Entity Number (UEN)
2. Contact Number & Email Address
3. Notice of Special Resolution
Notice of Resolution for Reduction of Capital Information
How long will it take to file/process this transaction?
This transaction will be approved upon submission.
If you are unsure how to file this transaction, please engage the services of a registered filing agent to file the transaction on your behalf.
How Bestar can Help
Here's a breakdown of how Bestar can contribute to a share capital reduction in Singapore:
Legal Expertise: Ensures adherence to the Companies Act and legal procedures throughout the reduction process. This includes:
Drafting resolutions (special resolution and director's declaration)
Meeting publicity requirements (notice in Gazette and newspaper)t
Advises on Choosing the Method: Recommends the most suitable approach (court-approved or shareholder approval) based on factors like creditor involvement and complexity.
Drafting Agreements: Assists with drafting watertight agreements if the reduction involves repurchasing shares from shareholders.
Financial Analysis: Assesses the company's financial health to determine solvency, a requirement for reduction in most cases. Prepares the solvency statement if needed.
Tax Implications: Analyzes potential tax consequences for the company and shareholders based on the source of funds used (share capital vs. reserves).
Financial Modeling: Creates financial models of different reduction scenarios to help understand the financial impact on the company.
Prepares Documentation: Assists with preparing financial documents required for filings with ACRA.
Handles ACRA Filings: Electronically submits necessary documents with ACRA via BizFile+. This includes the resolutions, solvency statement (if required), director's declaration, and notice containing the reduction information.
Ensures Timely Filings: Meets deadlines to avoid penalties for late submissions.
Verifies Compliance: Checks if filings adhere to ACRA's requirements and regulations.
Our expertise can help ensure a smooth, compliant, and tax-efficient share capital reduction process.
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