Money Markets Authority: Procedures of Reducing the Capital of Joint Stock ‎Company

The joint stock company is a corporate which its capital is divided to equal value shares subject to trade in stock market, it is constituted of a number of partners, every of whom owns a share in the capital, and his possession is by shares.

And joint stock companies may resort to reduce capital for many reasons, like expanding the company’s activities and business…so how expansion in joint stock company capital is made?

According to Money markets authority decision No.31 for the year 2020, about amendments of some of the executive regulations for the year No.7 for the year 2010, in regard of Money markets authority establishment and security regulation, the corporate that desires expansion of its capital should issue a decision of its board of directors, explaining reasons and methods of capital expansion, while declaring the priority rights for shareholders in case of expansion, also it should grant an approval of Kuwait central bank for the units under its supervision.

Besides, it should be submitted a request of joint stock company expansion to the Money markets authority, in addition to fulfill of what was mentioned within, about information and requirements according to the prepared form, and offering any extra information or documents inquired by Money markets authority in this regard, and deciding the approval of Money markets authority on the application, besides granting the company’s extraordinary general assembly approval on the capital expansion project.

Methods of Joint Stock Company’s Capital Expansion

The company’s capital expansion (standard shares) would take place by one of the following ways:

  • Cash increase.
  • In – kind increase.
  • Reduce by bonus shares distribution.
  • Reduce by converting a debt to shares.
  • Reduce on the purpose of issuing shares for employers.

Firstly: cash Increase

Cash increase of capital takes place through issuance of new shares paid as cash, these shares are issued by nominal value, or with an issuance bonus of the new nominal shares devoted to fulfill issuance expenses then added to reserve.

In case of issuance bonus existing, it should be submitted a report issued from investment advisor or asset valuer, authorized by Money markets authority, explaining the rules and methods of calculating an issuance bonus.

Secondly: In – Kind Increase

In – kind increase for capital occurs by issuance of new shares paid for presenting full kind share (material or incorporeal), these shares are issued by nominal value, or with an issuance bonus.

In case of issuance bonus existing, it should be presented a report issued from investment advisor or principal rectifier authorized of the authority, to explain the principal and method of calculating the issuance bonus, also rectifying incorporeal shares is done by an authorized rectifier of the authority, on condition that the principal rectifier shouldn’t be the same auditor of the company or the company partner.

Thirdly: Reduce by Bonus Shares Distribution

Reduce by bonus shares distribution is made through converting optional reserve or suspended profits or what is more than the minimum legal reserve.

Besides, shares are issued by nominal value without issuance bonus, and these shares are distributed on shareholders by the percentage whose everyone owns in the capital.

Fourthly: reduce by Converting a Debt to Shares

Reduce by converting a debt owed by the company into shares in the capital, by issuance of new shares to pay off debt or part of it according to agreement between the company and the creditor, on condition of being obliged by granting a written approval of the creditor by approving to convert a debt into shares in the company capital, presenting a debtor warrant, a copy of debt contract, and any related contracts.

Fifthly: Reduce on the Purpose of Issuing Shares for Employers

Reducing the capital is done by issuing new shares on purpose of its devoting to shares optional purchase system for employers, in this regard it is followed by approved instructions authorized of the authority.

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