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Reduction of Capital for Companies

Guide on Reduction of Capital for Companies in UAE

There are so many reasons as to why a business in the United Arab Emirates would want to implement a share capital reduction, and this includes the following:

  • Giving back the capital to shareholders as it is no longer needed for the ongoing operations of the company; 
  • Capital cancellation for capital that’s no longer being supported by the company’s assets (this is where share capital becomes greater than the company’s net assets);
  • Reducing or extinguishing the shareholders’ liability on shares which aren’t fully paid yet where unpaid capital isn’t expected to be required by the business

 

Share capital reduction may be utilized where a stakeholder of a company wishes to retire from business provided the amount paid to retire shareholder isn’t required for the ongoing operations of a business. Prior to deciding on a reduction of share capital for a business in UAE, it is advised to seek the advice of business setup professionals in UAE, most especially for advice on legal and taxation matters. 

Structuring of UAE reduction of company share capital 

Share capital may be reduced using various methods, which include:

  • Canceling the share capital that is not anymore supported by the assets of eh company; 
  • Giving back the share capital that isn’t required anymore and canceling shares; 
  • The reduction of share class’s nominal value wherein capital isn’t supported by the assets of a business; 
  • Waiving amounts that are due to unpaid shares if amounts aren’t expected to be used or deemed necessary by the business

Take note: it is possible to combine the aforementioned in reducing share capital. 

Requirements for reduction of capital for companies in UAE 

As per UAE Companies Act 2015, in order to complete the reduction of a company’s share capital in UAE, company directors have to make sure that the following aspects are addressed:

  • Company’s articles of association don’t prohibit the reduction of capital (articles of association that prohibit capital share reduction may be amended with the passing of a special board resolution)
  • There’s at least 1 share that’s non-redeemable in issue following share capital reduction 

Corporate PRO Services in Dubai

It is best to seek the opinion of business setup professionals as depending on the business’ structure or legal form, it may be required in passing a special resolution which is supported by directs’ solvency statement. It may also be required for a company to pass a special resolution that has the confirmation of local courts instead of solvency statement issued by company directors. 

Either way, the following are required:

  • Approval of the board of directors for the capital reduction
  • Special resolution which approves a reduction of capital for the company in UAE 

 

Where the reduction of capital has to be court approved, the company has to get a court order. 

As for a company that will require a solvency statement, the statement should contain the following:

  • If the directors intend to start the company’s winding up procedure in the next twelve months from the date of issuance of the solvency statement; 
  • If the company is capable of paying all of its liabilities in twelve months or less from the date of winding up procedure being started

 

In other cases, a solvency statement may say business is able to provide payments or discharge debts as they’re due on the following year from the solvency statement date. With a solvency statement, directors have to make full reviews of the financial status of a business, including future projection and current operations. For this, the following should be considered and prepared: the solvency statement of the company directors and the current accounts of the corporate entity which show the net assets of the business. 

At FAR Consulting Middle East, our team of Corporate PRO services helps make it incredibly easy for companies to reduce capital and report to proper authorities. Reporting of share capital reduction with the proper authorities, including the Department of Economic Development in UAE, involve the furnishing of the following:

 Form setting out a statement of company share capital following share capital reduction;

  • Special resolution of the company shareholders;
  • Compliance statement of the directors as per UAE Companies Act 2015 stating solvency statement was made prior to the special resolution passing 

 

 Our team that is comprised of seasoned business and taxation specialists also assists companies with their recording requirements, which include:

 Updating of shareholders or members’ register, as well as other records for cancelled shares or reduction of nominal value of shares;

  • Cancellation of share certificates if applicable or when shares are cancelled, unpaid amounts were waived or nominal value has been reduced;
  • Issuance of a new share certificate if applicable; and 
  • Updating of accounting records if shares are cancelled

 

For more information, don’t hesitate to call us today! You can address your queries over the phone or book a consultation with our experts to discuss your needs.