PLTC Company Law Practice Exam 2026 – Complete Preparation Resource

A company must pass a special resolution to legally reduce its share capital. This requirement is imposed to ensure that such a significant decision is made with a clear and overwhelming consensus among its shareholders, as reducing share capital can affect the rights of shareholders and the company's financial stability.

The rationale behind this requirement is rooted in the need to protect shareholders and creditors. A special resolution typically requires a higher voting threshold, which reflects the serious nature of capital reduction and the potential implications for all stakeholders involved.

While a shareholder agreement might outline the wishes and terms agreed upon by shareholders, it does not serve as a formal mechanism for reducing capital. Similarly, a majority vote in a meeting might not suffice if it does not meet the threshold of a special resolution, which typically requires at least three-quarters of voting rights in favor. Approval from regulatory authorities is often necessary for certain types of reductions, especially if they relate to solvency issues, but it does not replace the requirement of obtaining a special resolution from shareholders before proceeding.