Capital Reduction

AAA

DEFINITION of 'Capital Reduction'

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.

INVESTOPEDIA EXPLAINS '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. Shareholder

    Any person, company or other institution that owns at least one ...
  2. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  3. Additional Paid In Capital

    A value that is often included in the contributed surplus account ...
  4. Shareholders' Equity

    A firm's total assets minus its total liabilities. Equivalently, ...
  5. Retained Earnings

    The percentage of net earnings not paid out as dividends, but ...
  6. Share Capital

    Funds raised by issuing shares in return for cash or other considerations. ...
RELATED FAQS
  1. What happens when a company buys back its shares?

    When a company performs a share buyback, there are a few things that the company can do with the securities they buy back. ... Read Full Answer >>
  2. How does additional equity financing affect existing shareholders?

    Additional equity financing dilutes existing shareholders. There are two types of candidates for equity financing. One is ... Read Full Answer >>
  3. How do the C-suite members work together to make a successful company?

    Corporate managers, typically chosen by a board of directors in large organizations, are ultimately responsible to stakeholders ... Read Full Answer >>
  4. What rights do all common shareholders have?

    Individuals that own common shares of company stock are viewed as the true owners of that company. As such, a common shareholder ... Read Full Answer >>
  5. Why is a shareholder rights plan called a "poison pill?"

    To avoid being the target of a hostile takeover by a larger firm, a corporate board might adopt a defensive strategy called ... Read Full Answer >>
  6. How can investors influence the c-suite?

    Investors in publicly traded firms can influence C-suite executives by exercising voting rights or engaging in investor activism. ... Read Full Answer >>
Related Articles
  1. Investing

    A Breakdown Of Stock Buybacks

    Find out what these company programs achieve and what it means for stockholders.
  2. Options & Futures

    The "True" Cost Of Stock Options

    Perhaps the real cost of employee stock options is already accounted for in the expense of buyback programs.
  3. Investing Basics

    What are Ordinary Shares?

    Ordinary shares are any type of shares that are not preferred and don’t pay any type of predetermined dividend amount.
  4. Investing News

    A New Corporate Governance Initiative In Japan

    Expectations are low that Japan can create a corporate governance climate that meets global standards, but a new initiative is aimed at doing just that.
  5. 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.
  6. Investing Basics

    What is a Record Date?

    The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
  7. Investing Basics

    What is a Share?

    A share – also called a stock -- is a unit of ownership in a corporation or financial asset.
  8. Investing Basics

    Explaining Pro-Rata

    Pro-rata is a term meaning a fraction of a whole based on a relationship to the whole. Proportionate allocations are made pro-rata.
  9. Investing

    What are Preference Shares?

    Preference shares, also referred to as preferred shares, are equity shares that give the shareholders certain rights ahead of common shareholders. For instance, when the corporation declares ...
  10. Stock Analysis

    Intel Doesn't Need New Management

    Intel's purported manufacturing technology prowess has been completely squandered in the mobile arena, and the stock has been a disappointment.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center