Reduction of issued capital

Reduction of issued capital

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A client, in error, has issued 1,000 £1 shares on incorporation, and does not have the ability to pay for them.

I am always nervous of leaving unpaid capital on the balance sheet, and am considering the new Companies Act 2006 provisions for reducing the issued capital, with the requisite solvency statement, etc etc.

Can the accounting be as simple as Dr. Share Capital Cr. Unpaid Capital Debtor?

Or does the credit have to create a distributable reserve?

Yours,

Confused
Michael Bushell

Replies (6)

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By MikeyBaby
26th Mar 2009 16:07

Accounting
Thanks, but I'm more concerned about the accounting than the paperwork.

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By MikeyBaby
26th Mar 2009 12:42

Perhaps I should re-phrase
OK, he doesn't want to tie £1,000 up in a company that is in no need of working capital.

He'll pay me, don't worry.....

;-)

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By User deleted
26th Mar 2009 12:34

No Money
hmmmmn... if the client has no money to pay for the shares, then does he have the money to pay your fees for all the additional work?

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By MikeyBaby
26th Mar 2009 19:27

Thanks John
That still leaves him exposed to £1,000 though, whereas I'd like him to be exposed to £10 or somesuch!

May be easier to leave as unpaid capital, such as the exposure would only crystallise on dissolution.

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By User deleted
26th Mar 2009 18:41

DLA option?
If your client is a director of the company could you not repost the share debtor to his loan account.

If this causes the DLA to become overdrawn this can be corrected by voting a dividend, directors fees or simply paying a salary without the client actually drawing the cash involved.

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By steveoneill
26th Mar 2009 15:00

Capital Reduction is not easy
The capital reduction requirements with a solvency statement is not as simple as you think. I have now completed three of them for various clients, average cost £250 a job. (Solicitors average is £600)They are Complex. Secondly The solvency statement has to have basis of fact, therefore should be based on management accounts completed within 14 days before the date of the statement of solvency, therefore your client would also need to pay you for this as well. He would not have much change our of his £1,000. This case is better than one I saw, where the client thought it would be a good idea to take £5million in subscriber shares! This was certainly worth£250 to them.

However these new procedures are a lot simpler and less costly method of solictors and court applications under the 1985.

However if you do have a case they really does require it contact us through our website

Steve O'Neill
Business Tax Centre Ltd

www.btc-nw.co.uk

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