Is there any necessity for reduction of share capital of companies?
Why should share capital be reduced?
What are the situations make the companies to reduce share capital in Singapore?
Reasons for reduction of Singapore company’s share capital?
Necessities to reduce your Company’s Share Capital
There are multiple reasons why a company might want to reduce its share capital:
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Common reasons for reduction of share capital
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- A company may simply wish to return surplus capital to shareholders which is no longer required.
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- A company which does not have distributable profits may be keen to reduce its capital if it cannot afford to pay any future dividends.
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- A company may also conduct a capital reduction in order to reorganise, simplify and improve its capital structure. Changing a company’s capital structure may allow a company to engage in greater debt financing, which in turn increases leverage and potentially the company’s growth rate.
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- Reducing share capital helps ensure the sufficiency of distributable funds to maintain sustainable dividend payments. This is because where there are less shares, less dividends are expected to be declared generally.
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