Why does this reduce capital, and why does this reduce the company’s ability to pay creditors?
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Overall, think of selling shares as raising money for the company. You sell a chunk of the company in return for cash, which you can use to grow the company. But now you’re successful and have a lot of cash, so you can buy some of those shares back, which really means you pay the owners off so that those shares cease to exist. This raises the value of the still outstanding shares since the value of the company is divided among fewer shares. If the company pays dividends, this also could mean less in dividends to pay.
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