Capital Reduction

What is 'Capital Reduction'

Capital reduction is 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.

BREAKING DOWN 'Capital Reduction'

After a capital reduction, the number of shares in the company will decrease by the reduction amount. In some capital reductions, shareholders will receive a cash payment for shares cancelled - but, in other situations, there is minimal impact on shareholders.

RELATED TERMS
  1. Capitalized Cost Reduction

    Any upfront payment that reduces the cost of financing. Capitalized ...
  2. Capitalization Of Profits

    Converting a company's retained earnings, which represent the ...
  3. Shareholders' Agreement

    An arrangement among a company's shareholders describing how ...
  4. Shareholder Value

    The value delivered to shareholders because of management's ability ...
  5. Capitalization Structure

    The proportion of debt and equity in the capital configuration ...
  6. Share Capital

    Funds raised by issuing shares in return for cash or other considerations. ...
Related Articles
  1. Professionals

    Tax Reduction And Management Techniques

    Tax Reduction And Management Techniques
  2. Investing Basics

    How Does Dilution Work?

    Dilution refers to the reduction in the percentage equity ownership of a company due to additional equity being issued to other owners.
  3. Term

    What is the Shareholder Equity Ratio?

    The shareholder equity ratio shows how much money shareholders will receive if a company has to liquidate its assets.
  4. Investing Basics

    Who is a Shareholder?

    A shareholder is a person, company or other entity that owns at least one share of a company’s stock.
  5. Investing Basics

    Knowing Your Rights As A Shareholder

    We delve into common stock owners' privileges and how to be vigilant in monitoring a company.
  6. Investing

    What's Share Capital?

    Share capital, also called equity financing, is the total amount of money and property a company has received for selling its shares to shareholders.
  7. Active Trading

    Wrath of the Shareholders

    We all know that publicly traded companies are enthralled by their stocks, but why? Here we take a look at the top 5 reasons why companies care so much about their stock prices.
  8. Investing Basics

    Breaking Down Optimal Capital Structure

    An optimal capital structure shows the best balance of debt to equity a company can have in order to minimize its cost of capital.
  9. Professionals

    Corporate Securities: Common Stock

    FINRA Series 6 Exam Study Guide - Corporate Securities: Common Stock. Summary of the rights and privileges enjoyed by the common stockholder such as stock certificate, limited liability, dividends, ...
  10. Investing Basics

    Explaining Rights Offering

    A rights offering is an offer by a company to its existing shareholders of the right to buy additional shares in proportion to the number they already own.
RELATED FAQS
  1. What role do shareholders play in a capital budget?

    Learn about why shareholders play an integral role in capital budgeting and how it benefits businesses to use equity capital ... Read Answer >>
  2. What types of capital are not considered share capital?

    Find out what types of capital are not considered share capital, including an explanation of the different types of share ... Read Answer >>
  3. What are the components of shareholders' equity?

    Understanding company valuation figures, such as shareholders' equity, can be a powerful tool in assessing the financial ... Read Answer >>
  4. Why is the value of capital stock important to public shareholders?

    Understand what capital stock is and how it's issued and authorized. Learn why the value of capital stock important to public ... Read Answer >>
  5. How do interest rates influence a corporation's capital structure?

    Learn about how changing interest rates can affect a corporation's capital structure because of their impact on the cost ... Read Answer >>
  6. What are some characteristics of ordinary shares?

    Read about some of the primary characteristics of ordinary shares, also known as common shares, including voting rights and ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center