Companies Act 1956: Reserve Capital and Capital Reduction

Section 98 and 99

Every company may create reserve capital. This capital will be called up on the winding up of the company. The purpose of this capital is to make provision for expenses of the company on winding up so every company which is making reserve capital makes the provision for expenses on winding up.

The reserve capital cannot be called up before the winding up.

Capital Reduction

Section 100: Capital Reduction:

This process is applied in those companies in which there are accumulated losses, for this purpose the company will pass a special resolution and make an application to court after which the court may grant the permission to reduce the capital of the company. The balance sheet of the company will be reduced and the balance sheet of the company will always have a name Balance sheet as reduced.

Under Section 103 when capital reduction is done then the company must register the order of the court and resolution with the ROC and without registration the share capital cannot be altered.