Purchase of own shares - insufficient reserves

Purchase of own shares - insufficient reserves

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A holding company has a 100% subsidiary.

Four individuals hold shares in the holding company, and it is proposed that the company buys back its shares from one of those individuals for, lets say, £100k.

The holding company has only £1,000 capital and no distributable reserves at the last balance sheet date, although the subsidiary company has significant undistributed reserves.

I understand that a company can only buy back its shares if it has sufficient reserves, although it may also be possible to use capital. As even capital is insufficient in this company, is there any way of proceeding with this please?

Many thanks for any help!
Naomi Nesbit

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By User deleted
10th Jan 2008 21:39

Why not ...
You say it's a 100% subsidiary with substantial reserves.

Why doesn't the subsidiary simply pay a dividend to the holding company? Reserves created - problem solved.

I don't know if this would cause problems with HMRC clearance but I can't think why it would.

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