(1) Cancellation of unpaid share capital
This way is to cancel or reduce the liability of shareholders for their unpaid share capital. If the company has enough paid-in share capital, but its shares have not been paid in full, the company will reduce the par value of the shares by canceling part or all of the unpaid shares. For example, if a company owns shares with a face value of 10, of which HK$ 5 is paid-in share capital, it can cancel all unpaid shares and reduce the face value of the shares to HK$ 5. However, the company cannot regard the unpaid shares.
(2) Cancel part of paid-in share capital.
This method requires the cancellation of the paid-in share capital with losses or the paid-in share capital not reflected in the company's assets. Due to the accumulated losses, the company's share capital can no longer fully reflect its assets, which may mislead the company's creditors to protect their interests. In this case, the company cancels the paid-in share capital that its assets cannot reflect to reflect its real situation. This method can be used together with the above method of canceling or reducing unpaid share capital, or it can be used alone.
(3) Repayment of paid-up share capital
The company may not need to pay the paid-in share capital in full as before because of the shrinking business scale. In this case, the paid-in share capital can be reduced and the difference can be paid to shareholders in cash. After the capital reduction, the par value of the shares will be reduced accordingly.
In the above cases (1) and (3), the capital reduction caused the creditors of the company to partially lose the foreseeable available funds in the company liquidation. In view of this, the law stipulates that creditors should have the opportunity to object to capital reduction unless the court considers the situation unnecessary. Therefore, the company should prepare a list of creditors, advertise to make up for the vacancy, and obtain their approval for the capital reduction plan.
If the creditors object to the reduction of capital and the company fails to pay the amount due to the creditors, the court may require the company to provide the full amount. However, if both parties dispute the amount, the court may conduct an investigation and ask the company to provide the amount confirmed by the investigation results. This procedure is similar to the procedure adopted by the court in the liquidation of the company. Only when all creditors agree unanimously, or the debts owed by the company to different creditors have been paid off or guaranteed, the court will approve the company's capital reduction. As another kind of protection for creditors, the law stipulates that employees of a company who intentionally conceal the names of creditors or the full amount of debts, or support and abet such concealment, will be punished by fines and imprisonment.