Capital reduction is a strategy that is often used by companies in order to reduce the amount of equity financing that they have taken on. Here are the basics of capital reduction and what it means to shareholders.
Capital reduction is a method that companies will often use in order to reduce the amount of outstanding shares in the market place. This can be done by canceling shares or by purchasing them back from the market. This is typically done as a way to increase the value of the company stock.
What It Means to Investors
If you are an investor in a company that is reducing capital, it could affect you in a few different ways. If you are one of the individuals that has their shares canceled, the company is going to send you a check for the value of the shares. You will no longer be a shareholder in the company, but you will have your money. At that point, you could potentially use the money to buy new shares if you wanted. If you are one of the shareholders that remains after the reduction occurs, the value of your shares could increase because there are fewer shares in the market place.