I have inherited a client who was advised by his previous adviser to issue shares in January 2007 at a premium in his limited company so that the company ended up with about £25000 in the share premium account and £25000 in the bank. He was advised to do this to increase the capital base of the company in order to secure a licence to start trading in a new trade - the company had been dormant for a little while as a previous trade activity ceased. For various reasons, he has not secured a licence (to date) and therefore the company cannot trade; he now wants to know the most tax efficient way to take 'his money' out. He is a 40% taxpayer. The P/L reserves is negative £2 and previous share capital, before issue of shares at a premium, was £2.
Any suggestions. Thanks for any replies.
Anon
Anon
Replies (4)
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I believe that ...
if you convert the company to an unlimited company it can repay share capital. You would then ideally want to liquidate it as liabilty is of course unlimited, or you could perhaps convert back to a limited company. You'd need to check this out in the new companies act but I think the facility is staill there. Also, after 31 October 2008, a private company will be able to repay share capital under the new act, so if your client can wait a year or so the problem could be solved.
PS the new CA
provisions require a director's statement similar to a PoS, but wouldn't seem to be a problem in the circumstances
What about ESC C16
Would it be appropriate to just apply for ESC C16 and then liquidate if no trade envisaged? Would HMRC then accept this so that there is then no CGT as a capital distribution? Your further comments appreciated.
Sorry, yes of course you can liquidate ..
... in which case you don't need ESC C16 as that only applies if informal dissolution under s652 CA 1985 is applied for (don't know what it is under CA 2006). The problem is that a company cannot at the moment repay share capital and the Treasury Solicitor has said that if the share capital is more than £4,000 they will try to recover it for the Crown on the bona vacantia principle. Distributions in a liquidation on the other hand are automatically treated as capital distributions for tax purposes so you don't need ESC C16, but of course a liquidation will cost a few grand. After 31 October next year my understanding is that you can repay the capital and then go down the informal dissolution route.