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Reduction in share capital or share buy back?

Client's company has been set up with 1,000 shares of nominal value GBP10. There is one shareholder who is also the sole director.The shares have not been paid for and the amount due has currently been booked to the director's loan account. To avoid s455 issues (I am of the school of thought that s455 applies to unpaid share capital) I want to reduce the issued share capital to GBP1,000 (ie 1,000 shares of GBP10).

From other people's experiences what is the easiest way to do this and is there an issue that the company does not have distributable reserves of GBP9,000? Is there any way of changing the nominal value and would this help?

Any help greatly appreciated. Thank you.

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Reducing share capital

Under the Companies Act 2006 you can reduce the share capital in a private company by sending to Companies House:

- A special resolution reducing the share capital

- A solvency statement under s642 1a and s643, saying that there are are no ground on which the company could then be unable to pay its debts, now or in the following year etc.

- A revised memorandum of capital

- A statement of compliance that all the members have had a copy of the statement of compliance and that the solvency statement was made not more than 15 days before the special resolution was passed.

So, lots of paperwork, but in the end quite simple.

 

 

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Forfeiture?

I'm of the school of thought that doesn't believe that unpaid share capital represents the incurring of a debt or the making of a loan or advance.  The unpaid share capital is simply the limit of the members liability, ie the maximum amount they can be called upon to contribute to the creditors pot if the company were to be wound up.

However, treating the shares as paid up, and transferring the balance to DLA does represent the making of a loan. Have any accounts been filed on that basis? If not was it correct to make that transfer? and might it be correct to undo it?

If the whole of the share capital were to remain unpaid, you could redenominate it into smaller amounts and then call it all up on terms that mean that any shares that remained unpaid would be forfeited, other than subscriber shares. If the whole £10,000 are subscriber shares, then you'll need plan B.

As you have things though, you would need to redenominate and reduce the share capital. A private company doesn't need reserves available to make the reduction, but it will need to make a solvency statement, meaning the directors will be declaring that the company will effectively remain solvent for a year after the reduction. See Chapter 10 of CA2006.

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fascinating Steve

if you redenominate the shares can you still have authorised but unissued shares under CA 2006 and do you need a complete re work of the articles

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I'm not entirely sure

I don't see any reason why a company incorporated under a previous Companies Act can't redenominate its existing authorised share capital (or even increase or decrease it). It's just that it's not legislated for any more. The only time I'd see a company as needing to adopt new articles would be if it had an authorised share capital in its articles and now wanted to dispense with it.

I'm not sure if Euan's following this thread and has a view though? I know his company law's top notch.

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This might be of help....

This is a question that comes up quite often in 'Any Answers'.

I wrote an article on Share Buybacks for accountingweb about a year ago (see link below) - it might be of help/interest.

As partner55 states - lots of paperwork.

Share reconstruction is a subject that is on my list to do in the next couple of weeks

http://www.accountingweb.co.uk/topic/tax/share-buy-backs-get-details-right/485806 

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