Cancelling Share Premium

Posted by simonwwhitt PM | on Thu, 02/02/2012 - 17:51 777 4 comments | report

My company has a large share premium account and equally large accumulated losses. Now that we are profitable again I want to resume dividends - but obviously I need to get rid of my accumulated losses. I can find endless guidance and forms for writing off share capital against losses - but nothing dealing with share premium. I could capitalise the share premium by issueing new shares and then go down the route of cancelling the shares in accordance with the guidance I have found - but this does seem "clunky" - there must be a way to write it off directly! Is it the same procedure but just getting rid of all references to changing the share capital?

Comments

The Companies Act 2006 now

oaktreeriser | Thu, 09/02/2012 - 16:21 | Permalink

The Companies Act 2006 now allows you to convert share premium accounts into reserves that can be distributed as dividends.

A decent commercial lawyer should be able to sort this out for you; we did the saem thing withour business a few years ago.

Hope this helps

You don't need a lawyer....

thisistibi | Thu, 09/02/2012 - 16:30 | Permalink

To do a capital reduction. You just need to do the necessary resolutions for a capital reduction followed by a solvency statement, and lodge the relevant documents with Companies House. Check out this pro-forma documentation and guidance.

Cancelling Share Premium

kengntan | Fri, 24/02/2012 - 10:45 | Permalink

I have a similar situation but when I looked up Companies Act 2006 all I get was:

The share premium account
610 Application of share premiums
(1) If a company issues shares at a premium, whether for cash or otherwise, a sum
equal to the aggregate amount or value of the premiums on those shares must
be transferred to an account called “the share premium account”.
(2) Where, on issuing shares, a company has transferred a sum to the share
premium account, it may use that sum to write off—
(a) the expenses of the issue of those shares;
(b) any commission paid on the issue of those shares.
(3) The company may use the share premium account to pay up new shares to be
allotted to members as fully paid bonus shares.
(4) Subject to subsections (2) and (3), the provisions of the Companies Acts relating
to the reduction of a company’s share capital apply as if the share premium
account were part of its paid up share capital.
(5) This section has effect subject to—
section 611 (group reconstruction relief);
section 612 (merger relief);
section 614 (power to make further provisions by regulations).
Companies Act 2006 (c. 46)
(6) In this Chapter “the issuing company” means the company issuing shares as
mentioned in subsection (1) above.
And no where stating we can convert into distributable reserves.

Capital reduction

Nichola Ross Martin | Fri, 24/02/2012 - 11:11 | Permalink

As stated above, you can do this quite easily thanks to the Companies Act 2006. This is a bit fiddly, as you need to get the formalities right and so you end up with quite a surprising amount of paperwork, but that is company law for you. Might be a good time to also unpdate old articles.

Happy to assist you with a capital reduction if you need assistance, we advise on a lot of these and so we can offer experience and a cost effective solution.

Virtual Tax Support for accountants: www.rossmartin.co.uk