In India, Companies Act, 1956 is the principal law governing companies. It is the central Act. A company operating in India shall be registered under the Companies Act.

The process of decreasing a company's shareholder equity through share cancellations and share repurchases. The reduction of capital is done by companies for numerous reasons including increasing shareholder value and producing a more efficient capital structure.

Section 100 lists the ways for reduction of share capital

Under the provisions of section 100 reduction of share capital shall be in any way and in particular in the following manner.

1.      Reduce or extinguish the liability on any shares remaining not fully paid up

2.      Totally extinguish liability on any shares not fully paid up and reduce the face value of the shares to the extent of the paid up value

3.      Reduce the capital by combining (1) and (2)

4.      Pay off the share capital either with or without reduction of liability on shares, even if the shares are fully paid up on the grounds that such share capital is in excess of the wants of the company.

5.      Cancel any paid up share capital either with or without reduction of liability on any shares (whether fully paid or not) on the grounds that such paid up share capital is lost or is not represented by the available assets of the company.

Issues which arise from the above are-

·        What is the meaning of “not represented by the available assets”?

·        What is the detailed Procedure?

·        What are the Post-Reduction Compliances?

·        Why is it a “Domestic Affair”?

·        Conversion of equity shares into preference shares-Is it a Capital reduction?