Mode of reduction - alteration of capital, Business Law and Ethics

Mode of Reduction:

S.68 (1) expressly states that a company may reduce its capital "in any way". There is therefore no statutorily prescribed mode of reduction and the actual scheme adopted by the company will depend on the ingenuity of its directors or accountants. However, the Act gives the company an option of reducing its capital in one of the following ways:

a. By extinguishing the liability on any of its shares in respect of Share Capital not paid up: S.68 (1) (a)

Example:

The company's memorandum reads:

                            "... 1,000,000/- divided into 100,000 Ordinary Shares of 10/- each."

                            -      amount already paid per share is shs.5/-

                            -      amount unpaid per share is shs.5/-

The company passes a special resolution to reduce the capital to shs.500,000/-. The resolution is confirmed by the court.

The amended memorandum will read as follows:

                            "... 500,000/- divided into 100,000/- Ordinary Shares of 5/- each."

                            -      amount already paid per share is shs.5/-

                            -      the unpaid amount of 5/- per share ceases to be payable and the liability thereon is "extinguished."

b. By reducing the liability on any of its shares in respect of share capital not paid up: S.68 (1)

Posted Date: 1/12/2013 4:28:15 AM | Location : United States







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