What is capital reduction

1) Many a times, companies accumulate losses over the years to such an extent that their net worth becomes 0 or even goes into negative.

 

2) In such cases the balance sheets look very bad with huge losses. 

 

3) To write off the losses, the companies adjust the losses by writing off share capital.

 

4) Over the last few years, lot of unlisted company investors have lost good amount of money to such tactics.

 

5) For retail investors, it is never advisable to buy unlisted shares as there is no transparency in such companies working. 

 

6) Unlisted companies are not well regulated and have limited regulatory oversight.  Retail investors are easy target for the ill-motivated promoters of such companies if they want to financially exploit the market.