How is Share Capital Maintained?

One of the basic principles of UK company law is that share capital of the company (including any premium paid on it over its nominal value) is regarded as the permanent capital of the company and belongs to the company. The principle exists primarily for the benefit of the company’s creditors. Subject to certain limited exceptions, once its share capital has been issued, it is not possible for the company to reduce its capital or any share premium account or buy back its own shares. The Companies Act 2006 provides for certain limited exceptions to this rule, including a reduction of capital procedure. For public companies, the procedure requires a court order but for private companies a special resolution of shareholders and a solvency statement from the directors covering a 12 month period are all that is required. The Companies Act 2006 also permits the purchase by the company of its own shares (using profits available for distribution or the proceeds of a new issue of shares) with the approval of shareholders.