Commonwealth Repealed Acts
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This legislation has been repealed.
CORPORATIONS LAW- SECT 256B
Company may make reduction not otherwise authorised - (1)
- A company may reduce its share capital in a waythat is not otherwise authorised by law if the reduction:
- (a)
- is fair and reasonable to thecompany's shareholders as a whole; and
- (b)
- does not materially prejudice the company's ability to pay itscreditors; and
- (c)
- is approved by shareholders under section 256C.
A cancellation of a share for no consideration is a reductionof share capital, but paragraph (b) does not apply to this kind ofreduction.
Note 1: One of the ways inwhich a company might reduce its share capital is cancelling uncalledcapital.Note 2: Sections 258A- 258F deal with some of the other situations in whichreductions of share capital are authorised. Subsection 254K(2) authorisescapital reductions involved in the redemption of redeemable preference sharesand subsection 257A(2) authorises reductions involved in sharebuy-backs.
Note 3: For a director's duty to prevent insolvent trading on reductions ofshare capital, see section 588G.
- (2)
- The reduction is either an equal reductionor a selective reduction. The reduction is an equal reduction if:
- (a)
- it relates only toordinary shares; and
- (b)
- it applies to each holder of ordinary shares in proportion to thenumber of ordinary shares they hold; and
- (c)
- the terms of the reduction are the same for each holder ofordinary shares.
Otherwise, the reduction is a selective reduction.
- (3)
- In applying subsection (2), ignore differences in theterms of the reduction that are:
- (a)
- attributable to the fact that shares have different accrueddividend entitlements; or
- (b)
- attributable to the fact that shares have different amountsunpaid on them; or
- (c)
- introduced solely to ensure that each shareholder is left with awhole number of shares.
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FAQs
Company may make reduction not otherwise authorised
What is Section 256b of the Corporation Act 2001? ›
(1) A company may reduce its share capital in a way that is not otherwise authorised by law if the reduction: (a) is fair and reasonable to the company's shareholders as a whole; and.
Can paid-up capital be reduced? ›
Reduction of share capital means the reduction of issued, subscribed and paid-up capital of the Company. The reduction of capital is mainly done by companies for producing a more efficient capital structure.
What is the difference between equal and selective capital reduction? ›
An equal reduction requires shareholder approval by way of ordinary resolution whereas a selective reduction must be approved by either a special resolution (with certain voting restrictions), or a resolution agreed to by all ordinary shareholders.
What is capital reduction and share cancellation? ›
Capital reduction is the process of decreasing a company's shareholder equity through share cancellations and share repurchases, also known as share buybacks. The reduction of capital is done by companies for numerous reasons, including increasing shareholder value and producing a more efficient capital structure.
What is 256b of Title 42? ›
§ 256b, imposes a ceiling price that limits the prices that drug manufacturers may charge for drugs sold to specified health care facilities and entities, known as 340B entities.
What is Section 250D of the corporation Act? ›
Under section 250D of the Corporations Act 2001 (Cth), companies are able to appoint representatives to exercise their powers at meetings of another company, or in voting for circulating resolutions. To appoint a representative under Section 250D, the company's directors must pass a resolution to that effect.
Can paid-up capital be less than Authorised capital? ›
Must be less than or equal to the authorized capital. Companies cannot issue shares beyond this limit. It cannot exceed the authorized capital but can be equal to it.
Whose approval is required for capital reduction? ›
Approvals have to be obtained from shareholders, Board of directors and the National Company Law Tribunal. Resolution must have been approved by the shareholders which is passed by BoD. The shareholders must be sent a notice informing them about the general meeting.
How does a capital reduction work? ›
A reduction of share capital is implemented by the company making a payment to its shareholders out of capital. That is, value paid, or taken to have been paid, by shareholders to the company to acquire shares is returned to the shareholders.
Example of Capital Reduction
The company announces a share buyback and buys back 500,000 of its shares. These shares no longer trade publicly and reduce the number of shares outstanding the company has. Your company now has (1,250,000 – 500,000) = 750,000 shares outstanding.
Is capital reduction good or bad? ›
Some companies also do this as a way to reorganise or simplify their group structures. The result of capital reduction is that the number of shares in the company will decrease by the reduction amount. However, the company's market value won't change – there will simply be fewer shares available to trade.
For what purpose may the balance of capital reduction account be used? ›
Capital reduction accounts for a strategic tool companies leverage to lower their share capital and meet various goals. By lowering share capital via share cancellations or other such strategies, companies can boost their distributable reserves and better manage equity.
Is capital reduction taxable? ›
In case of a capital reduction, shareholders whose shares are being cancelled will be taxed. Such taxation is not only as capital gains.
What is a capital reduction demerger? ›
A capital reduction demerger involves the top company of the target group reducing its capital, in consideration for which the demerged business is transferred to a new holding company that in turn issues shares to the shareholders.
What is the difference between capital reduction and buyback? ›
Capital reduction attempts to reduce the tradable shares of the company, whereas through shares buyback, the company repurchases its shares from the market. The solvency statement provision doesn't allow shareholders to take any action against capital reduction.
What is Section 1017BB of the Corporations Act 2001? ›
CORPORATIONS ACT 2001 - SECT 1017BB Trustees of registrable superannuation entities--obligation to make information relating to investment of assets publicly available.
What is Section 255 of the Companies Act? ›
(1)[Unless the articles provide for the retirement of all Directors at every annual general meeting, not less than two-thirds] of the total number of Directors of a public company, or of a private company which is a subsidiary of a public company, shall- (a)be persons whose period of office is liable to determination ...
What is Section 252f of the Corporations Act? ›
At least 21 days notice must be given of a meeting of the members of a registered scheme. However, the scheme's constitution may specify a longer minimum period of notice.
What is Corporations Act 2001 Section 250n? ›
(1) A public company must hold an annual general meeting ( AGM ) within 18 months after its registration. (2) A public company must hold an AGM at least once in each calendar year and within 5 months after the end of its financial year. Note: An AGM held to satisfy this subsection may also satisfy subsection (1).