Glossary

Capital reduction

A capital reduction is a formal, court- or solvency-statement-backed process to reduce a company's share capital — sometimes used to free up reserves or return capital to shareholders.

2 min read

Formal processSolvency statement or court

Frees reservesCan enable distributions

Definition

A capital reduction is the statutory process by which a private company reduces its share capital, either supported by a directors' solvency statement or, less commonly, by court order.

In plain terms

It's a way to reshape the balance sheet — cancelling shares, returning surplus capital, or turning locked capital into distributable reserves so dividends can flow.

Why it matters for your company

Because it can move money out of the protected capital 'buffer' that creditors rely on, it requires a solvency statement from the directors. Take advice before starting. Related: distributable reserves.