A decision to reduce the authorized capital of a company in order to pay out funds to shareholders may be made only at the ordinary general meeting of shareholders. The ordinary general meeting of shareholders must be held annually no later than 4 months from the end of the financial year. Thus, as the end of the financial year approaches, it is possible to prepare for the approval of the set of annual financial statements and the reduction of the authorized capital.
When reducing the authorized capital in order to pay out funds to shareholders, settlements with shareholders are made only in cash. Persons who were shareholders of the company at the end of the day of the general meeting of shareholders that adopted the decision to reduce the authorized capital are entitled to receive payments.
When reducing the authorized capital of a company that is not formed from the contributions of the company’s shareholders, the funds received by shareholders are considered dividends (Article 12, paragraph 2 of the Law on Personal Income Tax). If the shareholders of the company are natural persons, the income received by them from the reduction of the authorized capital is subject to a 15 percent income tax, if they are legal persons – a 16 percent profit tax.
A document confirming the decision to reduce the authorized capital must be submitted to the administrator of the register of legal entities within 10 days of the decision being made.
The authorized capital is considered reduced only after the amended articles of association are registered in the register of legal entities.