Capital Redemption Reserve

English Legal System: Capital Redemption Reserve

In the context of the English law, A Dictionary of Law provides the following legal concept of Capital Redemption Reserve : A fund established to protect creditors by ensuring that the assets representing a company’s *capital are not reduced. In limited circumstances a company is permitted to buy back its own shares. If this is provided for by a term in the original share contract the company redeems its own shares. If no such term exists the company makes a purchase of its own shares. In either case the value of the capital sum will be reduced by the amount of the purchase or redemption unless an equal amount is transferred to a reserve that is subject to the same restrictions as the capital.