A reduction of capital is a process whereby a company chooses to reduce its total amount of share capital. This can be achieved in a variety of ways, such as reducing the nominal value of existing shares, the amount paid up on those issued shares, or the total number of shares in issue.

Some examples are:

• Reducing the nominal (par) value of each issued share. For example, if a company has 1,500 issued shares with a nominal value of £1 each and it wishes to return £750 to the shareholders, it can reduce its share capital by lowering the nominal value of every share from £1 to £0.50.
• Cancelling shares to repay share capital the company no longer requires. For example, if a company has 100 shares with a nominal value of £10 each and it wishes to repay £500 to the shareholders, it can reduce its share capital by cancelling 50 shares.
• Cancelling or reducing any outstanding liability on unpaid or partly paid shares.