The connotation of "capital reduction" is different under different modes of corporate capital system. "Capital reduction" under the legal capital system mode, regardless of whether the company law sets the installment payment system, is to reduce the registered capital. The direction of "capital reduction" under the authorized capital system model is multiple: First, "capital reduction" reduces authorized capital. "Authorized capital" is not "capital" in the strict sense, but a quota under "authorization"; The second is "capital reduction" to reduce the issued share capital. This form of capital reduction is not found in the statutory capital system, and it is the characteristic of the authorized capital system or the compromised authorized capital system. Third, "capital reduction" reduces the circulating share capital. Reducing the outstanding share capital, for the company's creditors, is equivalent to exempting shareholders from their unfulfilled capital contribution obligations, and at the same time reducing the company's solvency accordingly. As a result, the creditor protection procedure will inevitably start, and the creditor will ask the company to pay off its debts in advance or provide corresponding guarantees.
According to the outflow of the company's net assets, capital reduction can be divided into substantive capital reduction and formal capital reduction. When the capital is greatly reduced, the company's net assets flow from the company to shareholders. When the capital is reduced formally, only the registered capital of the company is reduced, and the flow of the company's net assets does not occur. If "assets", especially "net assets", are locked together with the company's credit and solvency, then substantial capital reduction will inevitably lead to the impairment of net assets, and the corresponding chain reaction is the weakening of the company's credit or solvency. Substantial capital reduction violates the law that creditors have priority to be paid. In other words, through a substantial capital reduction, the company's assets flow to shareholders first, rather than meeting the requirements of creditors first. In the view of Professor Li of South Korea, "substantial capital reduction means that shareholders have priority over creditors to recover the invested capital". How to design the rules of capital reduction, an important weighing factor is whether the capital reduction will inevitably harm the interests of external creditors. The accumulated business practice tells us that reducing capital does not necessarily mean that the interests of creditors are damaged. For example, after the capital reduction, the company still has strong cash flow, or the bank gives strong support, or the directors swear that the company is still solvent and take the auditor's credit report as evidence. Then, the law may wish to believe that the company's credit and solvency have not weakened, and there is no need to give creditors strong and high-cost protection. Formal capital reduction does not produce the outward flow of company assets, but aims to realize the real return of company assets and company capital. Formal capital reduction often occurs above loss-making enterprises, and its purpose is to make the company's statutory capital and net assets level close. By reducing capital, it is possible for loss-making enterprises to distribute surplus. The formal capital reduction is only a "paper transaction", which is a proportional write-off of the accounts at both ends of the company's balance sheet and will not lead to the reduction of the company's net assets. If the net assets of the company remain unchanged and the financial situation returns to the real situation, then the view that the formal capital reduction will weaken the company's credit or solvency cannot stand scrutiny.
What is capital reduction? For shareholders, capital reduction is tantamount to a way of realizing investment. Professor EilisFerran, a British corporate financier, believes that reducing capital is one of the ways for enterprises to return surplus to shareholders. For example, in the capital market, common corporate buybacks and corporate redemptions have the same economic effects as corporate distribution. From the overwhelming form of essence, they are all the return of surplus. Why should we reduce capital to return surplus? First, after the return of the company's capital, the total profit that SMEs may generate is small, and the company can reduce the dividend distribution in the future; Second, capital reduction can also optimize the company's capital structure and enhance the company's financial image. The above cognition is in the aspect of substantial capital reduction. As far as the formal capital reduction is concerned, it is to cope with the commercial reality that the company's assets no longer truly reflect the registered capital on the company's books. If the company does not reduce its capital in this case, it must make up for the loss before trying to redistribute the dividend.
It is based on the above cognition that all countries regard capital reduction as a fundamental structural change of the company. The legitimacy of this cognition lies in: first, capital reduction involves the reduction of the company's own working capital or credit capital; The second is to affect the interests of external creditors and shareholders of the company as the ultimate beneficiaries. In the civil law system, capital reduction is subject to a special resolution of the shareholders' meeting. In the common law system, capital reduction belongs to the business judgment of the board of directors. In the United States, as long as it meets the solvency standard, neither the statute law nor the court sets other strict obstacles or restrictions on capital reduction. If we look at reducing capital from the essence of income distribution, it is meaningful for legislators to pay attention to the balance of interests between creditors and shareholders. Taking capital reduction as the scale of similar distribution and substantial effect as the scale is the unanimous countermeasure reached by American company law. The balance of interests among shareholders can naturally be solved through the trustee's obligation of directors, the fairness of legal procedures in enterprise operation and the correction afterwards. The civil law system pays attention to the possible impact of capital reduction on creditors, thus setting up a series of complicated containment procedures, with the intention of fully protecting external creditors with prior procedures and substantive guarantees. Give full play to the traditional concept of creditor priority. As for the cost of time or money paid by the company or shareholders, it is not measured by legislators.
In fact, the design process of capital reduction rules is a process for a country's legislators or scholars to grasp the connotation of capital reduction, understand the nature of capital reduction, balance the interest groups affected by capital reduction, realize the values of "equality and justice", respond to the needs of business practice and give creditors protection. Different cognition leads to different patterns. The convergence and divergence of cognition lead to imitation and deviation between models.