According to the Company Law, a company may reduce its registered capital in accordance with the law under certain circumstances such as excess capital and serious losses. When implementing capital reduction, the company must abide by certain procedures, including preparing balance sheets and property lists, notifying creditors, and making announcements in newspapers. Creditors have the right to require the company to pay off debts or provide corresponding guarantees within the prescribed time limit. If the company does not reduce its capital according to the prescribed procedures, it may face legal punishment.
A company's capital reduction shall meet one of the following conditions:
1, the company has too much capital, the original company has too much capital and too much formal capital. Keeping capital unchanged will lead to idle and waste of capital in the company, which is not conducive to capital efficiency and increases the burden of dividends.
2. The company suffered serious losses, and the total capital was far from the actual assets. The company's capital has lost its due legal significance to prove the company's credit status, and shareholders have not received due returns because of the company's losses for years.
To sum up, when a company is in debt, it can reduce its capital according to law, but it must follow the procedures stipulated in the Company Law to ensure that the rights and interests of creditors are protected.
Legal basis:
Company Law of the People's Republic of China
Article 177
When a company needs to reduce its registered capital, it must prepare a balance sheet and a list of assets.
The company shall notify the creditors within ten days from the date of making the resolution to reduce the registered capital, and make an announcement in the newspaper within thirty days.
Creditors have the right to require the company to pay off debts or provide corresponding guarantees within 30 days from the date of receiving the notice, or within 45 days from the date of announcement if they have not received the notice.