Reasons and classification of company's capital reduction
Generally speaking, the main reasons for the company's capital reduction are:
First, in order to eliminate the huge investment obligation. In judicial practice, due to the subscription system of registered capital in company registration, the registered capital subscribed by some companies at the time of establishment is quite different from the funds needed for actual business development. Due to the expiration of the capital contribution period or the needs of the capital market, the company will choose to reduce its capital.
Second, reduce capital to make up for the company's losses. Because the company is in a state of loss, the gap between net assets and registered capital is too large, and capital reduction is carried out to make up for the company's losses.
Third, the capital is reduced due to the withdrawal of shareholders. Due to the inconsistency of shareholders' business philosophy or changes in the company's shareholders' business, some shareholders will realize their equity by reducing their capital and withdraw from the shareholder sequence.
Although the Company Law does not classify the ways of capital reduction of companies, according to the above reasons and different standards in practice, capital reduction can be divided into the following categories:
1. According to the different ways in which assets are returned to shareholders after capital reduction, the capital reduction of a company can be divided into capital reduction without capital contribution obligation, capital contribution return and equity or share elimination. Capital reduction without capital contribution obligation refers to the exemption of shareholders from all or part of their capital contribution obligations to the subscribed registered capital. Reducing capital contribution refers to returning part of the registered capital to the shareholders who have paid in the registered capital. Cancellation of equity or capital reduction refers to direct cancellation of part of equity or shares or direct reduction of the amount per share to offset the losses that should be made up.
Second, according to whether the company's assets actually decrease, the company's capital reduction can be divided into substantive capital reduction and formal capital reduction. Substantial capital reduction refers to a form of capital reduction in which shareholders return a certain amount, thereby reducing the registered capital of the company and reducing the company's property, such as the capital reduction mentioned above. Formal capital reduction refers to a form of capital reduction in which the registered capital of the company has been reduced, but the company's property has not flowed out, such as the aforementioned capital reduction/cancellation of equity or share reduction without capital contribution obligation.
Third, according to whether some shareholders reduce their capital or all of them, they can be divided into transactional capital reduction and non-transactional capital reduction (capital reduction in different proportions and capital reduction year by year). Transactional capital reduction refers to the substantial capital reduction of some shareholders of the company, and the shareholding ratio or shareholding ratio of each shareholder will change after the capital reduction; Non-transactional capital reduction refers to the overall capital reduction of the company's shareholders, and the shareholding ratio of each shareholder remains unchanged after the capital reduction.
To sum up, in practice, laws and regulations have not made corresponding provisions on the specific content of the capital reduction plan. In principle, the board of directors or executive directors of the company shall formulate it according to the actual situation and needs of the company. Generally speaking, the company's capital reduction plan drawn up by the company's board of directors (or executive directors) can specifically include: determining the capital reduction base date, the capital reduction method, the payment method of the capital reduction consideration, the debt list and main debt details before the capital reduction base date, defining the relevant matters of convening and voting on the capital reduction resolution, personnel adjustment, tax planning, special procedures for capital reduction of state-owned assets companies, etc.
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.
Article 178
When a limited liability company increases its registered capital, the contribution of the newly-increased capital subscribed by shareholders shall be implemented in accordance with the relevant provisions of this Law on the contribution of limited liability companies.
When a joint stock limited company issues new shares to increase its registered capital, shareholders shall subscribe for new shares in accordance with the relevant provisions of this Law on the establishment of a joint stock limited company and the payment of shares.