1.    On company:

The real value of the business and its earning capacity reduces with the adverse affect on market value of shares. Credit standing of the company in the market falls down and it is difficult to raise further capital. The temporary means like lower amount of depreciation and maintenance charges are followed to improve the earnings which aggravates the situation further.

2.    On shareholder:

This is the worst affected class. The shares held by them are not having any backing of tangible assets. Due to the reduced market values, the shares become non-transferable or are required to be transferred at extremely low prices.

3.    On consumers:

To overcome the situation of overcapitalisation and to improve the earnings, the company may be tempted of increase the selling price, more particularly in monopoly conditions. Due to this, the quality of the products may also affected.

4.    On society at large:

The increasing selling prices and reducing quality can’t be continued for a very long time due to the competition existing in the market. The situation like this means loosing the backing of the shareholders as well as the consumers. As a result, the company is dragged towards the winding up which ultimately affects the society at a large in the adverse way in terms of lost industrial production, unemployment generated, unrest among the workers as a part of society etc.

Remedies available:

In order to overcome the situation of overcapitalisation, the company may resort to any of the following remedial measures:

1.    To reduce the debts by repaying them. But the debts should be paid out of the own earnings of the company. There is no point in repaying the debts out of the fresh issue of shares or debentures, as it does not reduce the amount of capitalisation.

2.    To redeem the preferences shares if they carry too high rate of dividend.

3.    The persons holding the debentures may be persuaded to accept new debentures which carry lower rate of interest.

4.    The par value of the equity shares may be reduced but this also will have to be done only after taking the shareholders into confidence.

5.    The number of equity shares may be reduced this also will have to be done only after taking the the shareholders into confidence.