• 6 Marks

BL – May 2017 – L1 – SB – Q2b – Company Law | Partnership Law

Outlines permissible cases of capital reduction under CAMA and purposes for reducing share capital.

Section 105(1) of the Companies and Allied Matters Act (CAMA) provides that “except as provided by this Act, a company having share capital shall not reduce its issued capital.”
Required:
i. State TWO cases of capital reduction permitted under the CAMA.
(2 Marks)

ii. State TWO purposes for which a company may reduce its share capital under the CAMA.
(2 Marks)

i. Two Cases of Capital Reduction Permitted under CAMA:

  1. Reduction with Court Approval: When the company has obtained a special resolution and court approval to reduce its share capital.
  2. Cancellation of Unissued Shares: When the company cancels any unissued shares, which reduces the authorized share capital without affecting the paid-up share capital.

ii. Two Purposes for which a Company May Reduce its Share Capital under CAMA:

  1. To Write off Accumulated Losses: A company may reduce its share capital to write off accumulated losses or bad debts, improving its financial position.
  2. Return of Excess Capital to Shareholders: A company may reduce its share capital if it has excess funds that are not needed for the business, returning them to shareholders.
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