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Reduction of Capital

Restructuring Your Company with Confidence

Expert lawyers guiding you through compliant capital reorganisations.

A reduction of capital allows a company to reduce its issued share capital in a legally compliant manner. This can improve balance sheet efficiency, release distributable reserves, facilitate shareholder exits, or support wider corporate restructuring.

While reductions of capital are a legitimate and often strategic tool, they are governed by strict provisions under the Companies Act 2006. Professional legal advice ensures the process is carried out correctly, creditor interests are protected, and the company remains compliant.

At Ellis-Fermor & Negus, our experienced corporate team provide clear, commercially focused advice on capital reductions, supporting businesses across the East Midlands and beyond.

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Why Legal Advice Matters in a Reduction of Capital

Reducing share capital is a formal legal procedure and involves:

Statutory compliance – following Companies Act requirements.

Shareholder approval – passing the appropriate resolutions.

Solvency statements – required to be reviewed by the directors of the Company.

Creditor protection – ensuring liabilities can still be met.

Companies House filings – strict documentation and deadlines.

Failure to follow the correct procedure can invalidate the reduction and expose directors to personal risk.

Make a Free Enquiry Today

0115 972 5222

corporate@ellis-fermor.co.uk

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‘Excellent response times from Charlotte all supported by a very competent team at EFN. Having used EFN for many years, I couldn’t recommend their services highly enough, excellent!’

Charlotte Stojak

Solicitor and Head of Corporate

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Why choose Ellis-Fermor & Negus?

Experienced corporate lawyers specialising in capital reorganisations.

Clear advice on director duties and solvency requirements.

Expertise in shareholders’ agreements and dispute prevention.

Efficient handling of Companies House filings and compliance.

Ability to work collaboratively with your tax and financial advisors.

Trusted by owner-managed companies across the East Midlands.

Speak to our team today to explore your options with no obligation

Meet the team

Smiling female solicitor wearing an orange blazer, representing Ellis-Fermor & Negus, a solicitors' firm in the East Midlands.

Charlotte Stojak

Charlotte joined the firm in 2024 and was appointed Head of Department for Corporate in April 2025. Charlotte qualified as a Solicitor in 2015, after studying Law (LLB) at Derby University and the Legal Practice Course at Staffordshire University. Charlotte has worked at a number of large law firms, gaining invaluable experience and exposure. Charlotte’s…

0115 972 5222

charlotte.stojak@ellis-fermor.co.uk

Charlotte Stojak is based at our Long Eaton Office.

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Jennifer Geary

Jennifer grew up in Long Eaton and first worked for Ellis-Fermor & Negus during her University summer holidays in 2003. She graduated from Derby University in 2004 with a Law Degree and returned the same summer to Ellis-Fermor & Negus as an Assistant to David Negus in the Commercial and Litigation Department to complete her…

01159 835 221

jennifer.geary@ellis-fermor.co.uk

Jennifer Geary is based at our Long Eaton Office.

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Frequently Asked Questions

A reduction of capital is the process by which a company decreases its issued share capital. This may involve:

Cancelling shares.
Reducing nominal share value.
Returning surplus capital to shareholders.

Companies can usually complete a reduction using a solvency statement procedure, avoiding court approval, provided directors can confirm the company will remain solvent. .

Our corporate team guide directors through the most appropriate and efficient route.

Companies may reduce capital for several strategic reasons:

Balance Sheet Restructuring

Eliminate accumulated losses.
Create distributable reserves.

Returning Funds to Shareholders

Release surplus capital.
Facilitate shareholder exits.

Group Reorganisation

Simplify company structure.
Prepare for sale or investment.

Shareholder Disputes or Buyouts

Remove or cancel shares.
Adjust ownership percentages.

We ensure your objectives are achieved while protecting directors and the company.

Step 1: Initial Consultation

Review your company’s financial position.
Work with your tax and financial advisors in relation to the suitability of the solvency statement procedure.
Identify risks and compliance requirements.

Step 2: Drafting Documentation

Prepare solvency statements (if applicable).
Draft board minutes and shareholder resolutions.
Update articles of association where required.

Step 3: Shareholder Approval

Advice on the requirement for passing the special shareholder resolution.
Obtain necessary consents.

Step 4: Filing and Completion

Submit required forms to Companies House.
Update statutory registers.
Confirm completion of reduction.

We ensure all documentation is accurate and deadlines are met to avoid invalidation.

1. Incorrect Solvency Statements – Directors must be confident the company can meet debts; errors carry personal risk.

2. Creditor Concerns – Reductions must not prejudice creditor rights.

3. Tax Implications – Certain reductions may trigger income or capital gains tax consequences.

4. Incomplete Filings – Missed deadlines can invalidate the process.

5. Shareholder Disputes – Minority shareholders may challenge the transaction.

Our team proactively manage these risks to ensure a smooth and compliant process.

Reducing share capital is a formal legal procedure and involves:

Statutory compliance – following Companies Act requirements.

Shareholder approval – passing the appropriate resolutions.

Solvency statements – required to be reviewed by the directors of the Company.

Creditor protection – ensuring liabilities can still be met.

Companies House filings – strict documentation and deadlines.

Failure to follow the correct procedure can invalidate the reduction and expose directors to personal risk.

It allows a company to reorganise its balance sheet, create distributable reserves, or return surplus funds to shareholders.

Private companies can usually use the solvency statement procedure without court involvement.

Directors must sign a solvency statement confirming the company can meet its debts. If this is done improperly, there may be personal consequences.

A reduction must not unfairly prejudice creditors. Legal and accountancy advice ensures compliance with creditor protection rules.

Yes. The tax treatment depends on the structure of the reduction and shareholder circumstances.

For private companies using the solvency statement route, the process can often be completed within several weeks.

If you are considering a reduction of capital, expert legal guidance ensures the process is compliant, efficient, and aligned with your commercial objectives.

Phone: 0115 972 5222 • Contact form: ellis-fermor.co.uk/contact-us

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