Capital reduction audit

There are various reasons why the bodies of a company (e.g. a stock company) could opt for a capital reduction: This could be due to excessively high (dormant) capital, the desire to remove treasury shares, the tax-free distribution of a dividend or a balance sheet restructuring measure.

Two types of capital reduction exist: constitutive and declaratory. In the case of a constitutive reduction, funds are released for the company. In contrast, no funds are released by a declaratory reduction. This type of capital reduction takes in the context of (balance sheet) restructuring, as part of which a portion of the capital is offset against the cumulative losses – up to a maximum of the minimum required capital depending on the type of company. If the capital is subsequently increased back to the original level by new funds, this is known as a “harmonica”. In this case, the situation of the creditors is improved, which is not possible in the case of simple offsetting against cumulative losses or even a constitutive capital reduction.