Whenever a unit that has been recruited as a company sustains casualties, all companies are reduced by that number of casualties, and the amount of units trained per company is also reduced.

For example, a company of eight (bug had already occurred once before) footsoldiers lost three units taking a city.  Every company in my army was reduced to five units, and companies can only train groups of five units.  I'm not sure if company strength is reduced as a result, or if the AI companies are reduced as well.