Can a company reduce its share capital?Discuss its legal justification.

Generally, company are bound to maintain its share capital as it is a source of payment to creditors and SH's expectations that it will be use for the object of the company.

However, reduction of capital is allowed provided procedures in section 64 are done:

1) Authorized by A/A

2) Pass a special resolution

3) Get court's approval

4) Obtain creditors consent- section 64(2)

5. Court cannot approve if creditors object- section 64(4)

Types of reduction

1) Extinguish liability on partly paid shares.

2) Cancel off fully paid up shares that is lost or not presented by assets.

3) Paid off fully paid up capital on fully paid up shares.

Reason for reduction

1) Downsizing operation

2) Overcapitalization

3) Write off capital due to trading loss

4) Reconstruction of capital structure