Can a company reduce its capital in proportion to its shareholding? Can the capital reduction be refunded in non-cash assets?
1. Can a company reduce its capital in proportion to its shareholding?
(1) Whether a limited company may reduce its capital in proportion to its capital contribution
1. According to Article 106, Paragraph 3 of the Company Law: "A company may reduce capital or change its organization into a joint stock limited company with the consent of more than half of the voting rights of shareholders." As for the reduction of capital, it should be based on the proportion of capital contribution or not according to the proportion of capital contribution. In short, there are no express restrictions in the Company Law. (Ministry of Economic Affairs Business No. 09002270310 on December 26, 1990)
2. In order to avoid unequal treatment of specific shareholders, a limited company shall reduce its capital in proportion to the shareholder's capital contribution. Article 106, Paragraph 3 of the Company Law shall apply, and it shall only require the consent of more than half of the shareholders' voting rights; if it is not proportional, Capital reduction and reduction shall be governed by Article 106, Paragraph 3 of the Company Law, and must be approved by all shareholders. (Additional explanation via letter No. 10902400360 on 109.1.8)
(2) A joint stock company shall reduce its capital in proportion to its shareholding
According to Article 168 of the Company Law, the amount should be reduced according to the proportion of shares held by the shareholders. However, this does not apply if the company law or other laws provide otherwise.
2. Can non-cash assets be used to reduce capital and return shares?
(1) The capital reduction of a limited company can be made with non-cash assets
The capital reduction of a limited company must be approved by more than half of the voting rights of shareholders, and can also be done with property other than cash. (Article 168 of the Company Law) (Note: Paragraph 3 of Article 106 of the Company Law that came into effect on November 1, 2017 was amended. A limited company may reduce its capital with the consent of more than half of the voting rights of shareholders.)
According to the Ministry of Economic Affairs' letter No. 09700511280 dated January 29, 1997, it is not necessary for a company to reduce its capital and return its shares with property other than cash. When a limited company reduces its capital and returns its shares, it can also do so with property other than cash. However, the capital reduction of a limited company must be approved by all shareholders (see Article 106, Paragraph 4 of the Company Law). The value of the returned property and the amount of the offset must be submitted to an accountant for verification and certification.
(Letter No. 09902146960 from the Ministry of Economic Affairs dated November 1, 1999)
(2) Capital reduction of a joint-stock company can be made with non-cash assets
According to Article 168 of the Company Law, when a company reduces its capital, it may return its shares with property other than cash; the property to be returned and the amount of the offset shall be subject to a resolution of the shareholders' meeting and the consent of the shareholder who received the property. The value of the property mentioned in the preceding paragraph and the amount of offset shall be submitted to the accountant for verification by the board of directors before the shareholders' meeting.
Data source: Relevant laws, Internet information and compiled by Jingxun United Accounting Firm
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