A capital reduction is a process where a company decreases its shareholder equity through share cancellations, share repurchases, or paid-back capital. This process is generally done for various reasons, including creating distributable reserves, returning surplus capital back to shareholders, simplifying the capital structure to be more efficient, and reducing or eliminating paid-up or unpaid shares. A capital reduction can be achieved in various ways, including share buybacks, cancellation of a share premium account, reduction of share capital and immediate distribution to shareholders, and reduction of share capital and transfer of funds to the companys reserves. The Corporations Act 2001 (Cth) sets out the types of capital reduction a company may undertake, such as an equal reduction or a selective reduction. A reduction of share capital allows a company to reduce its issued capital without the need for each individual shareholders consent. However, creditors of the company are entitled to object against the reduction of capital if they can show there is a real likelihood the reduction would result in the company being unable to discharge the creditors debt or claim when it fell due.