Share capital refers to the funds contributed by shareholders to establish or expand a company.
- The authorised capital represents the maximum amount of share capital permitted by the company’s constitutional documents. Part of this capital may remain unissued. Authorised capital can be modified with shareholder consent.
- Issued share capital refers to the shares issued to and held by shareholders.
Methods of Share Capital Reduction
Sections 64 to 68 of the Companies Law (Cap 113) regulate share capital reduction for Cyprus companies. A company, by special resolution of shareholders, may decide to:
- Eliminate or decrease the liability on unpaid share capital.
- Cancel paid-up share capital lost or not backed by available assets.
- Repay excess paid-up share capital.
- Cancel paid-up share capital to offset company losses.
- Cancel paid-up share capital by creating a reserve known as the “capital reduction reserve fund”.
Procedure for Share Capital Reduction
Share capital reduction must be allowed by the company’s articles of association. It requires a special resolution of the shareholders. A court order approving the reduction is necessary, obtained through a petition filed by the company. A copy of the court order and special resolution must be submitted to the Registrar of Companies.
Court Applications
Two applications are filed:
- Application by summons: Provides explicit details of the reduction, supported by exhibits such as the company’s incorporation documents, articles of association, and creditors’ consents.
- Application by petition: Seeks a court date for the hearing of the first application and provides directions on publishing the order.
Evaluation by the Court
Courts assess the legitimacy of the reduction, considering if it’s commercially justified and doesn’t harm stakeholders’ interests. Factors considered include equitable treatment of shareholders, proper explanation of proposals, and protection of creditors’ interests.
Effectiveness of Reduction
The court’s order, along with the special resolution, must be filed with the Registrar for registration. This registration confirms compliance with legal requirements and updates the company’s share capital status.
Liability After Reduction
Following the reduction, shareholders are relieved of liability for the reduced nominal value of their shares.
Disclaimer
Disclaimer
This guide contains information for general guidance only and does not substitute professional advice, which must be sought before taking any actions.
