Practice // Questions and comments // Reasons for reducing the nominal capital of a company

Financial management : Question 4
I'd like to know what advantages there are in reducing the nominal capital of a company.

ALL THEMES
  • COST OF CAPITAL
  • FINANCIAL ANALYSIS
  • FINANCIAL ENGINEERING
  • FINANCIAL MANAGEMENT
  • FINANCIAL POLICY
  • VALUATION
In the strict sense of the term, a capital reduction means that losses incurred are set off by reducing the capital, which is then increased through cash contributions, often made by new shareholders.

What it does is prepare the company for a shift to a healthy financial state, and get it ready to pay out dividends, because dividends can never be paid when there are loss carryforwards.