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Capital redemption reserve
Practical Law UK Glossary 1-107-6178 (Approx. 4 pages)
Glossary
Capital redemption reserve
A statutory, non-distributable reserve into which amounts are transferred following the redemption or purchase of a company's own shares out of distributable profits or, in certain circumstances, from the proceeds of a fresh issue of shares. The provisions relating to the capital redemption reserve are set out in section 733 of the Companies Act 2006.
Subject to the company's articles, the capital redemption reserve may be:
- Used to pay up new shares to be allotted to members as fully paid bonus shares.
- Reduced (or cancelled) by means of a reduction of capital. In accordance with article 3 of the Companies (Reduction of Share Capital) Order 2008, the reserve created on such reduction can be treated as a realised profit and, therefore, it may be distributed to shareholders or used to buy back shares.
For more information on the capital redemption reserve, see Practice note, Company reserves: a summary of their creation and use: Capital redemption reserve.