I have seen some strange company formations when clients do these themselves. New client for some reason alloted 1m £1 shares to himself. In the statement of capital (Share Capital) in the incorporation documents it also clearly state "Total Aggregate Unpaid: 0". So is there any way of reducing the share capital to say 10 shares of £1. There will be no or little reserve as it is the first year of trading. Will a share buy-back through the solvency statement work in this situation (clearing 999,990 shares through capital)? And is there any other further steps than solvency statement, special resolution and the SH03 and SH06?
Or is there a way of being able to argue that this was just an error and lodging an annual return changing shareholding to 10 £1 shares?
He does not really just want to close the business and open a new company as everything is set up (bank, suppliers, customer contracts, he sometimes works offshore and have contracts for these). And since the company was incorporated I am sure that the company would have made profit and very probably have a corporation tax liability.
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From a practical perspective, disregard what was initially done, and simply amend the first confirmation statement to show a more sensible share allocation.
Clients often do crazy stuff like this.
They don't realise that they have to pay for the shares.
The company would need to do a reduction of capital via the solvency statement route, you cannot lodge a confirmation statement to change things, so you would need minutes, resolutions and form SH19 to cancel unpaid share capital as I assume they have not paid, this can also reduce nominal values down at the same time
We do a lot of these sadly as mistakes are quite frequent when clients form companies through Companies house direct
Happy to help
You cannot correct this by simply filing a confirmation statement showing how you would like things to be. The issue needs to be dealt with formally via a reduction of capital procedure. Otherwise the danger is that the company goes into liquidation and the first thing the liquidator will do is to collect the unpaid share capital. Don't forget that companies are called 'limited' as the liability of the shareholders is 'limited' to their share capital.
I had this same issue with a client, albeit the figure was only £50K but just as silly. I took advice from several people and spoke to Companies House and was advised that the only possible option was to have a Board meeting and to pass a special resolution to reduce the share capital. The reduction of share capital required a Solvency Statement under s642 CA206, statement of compliance under s644(5) and subsequently completion of SH19.
Thanks everyone.
I have done these share reductions in the past, even though it was generally repurchasing shares from reserves to remove a shareholder for some reason or another. Because of the monetary value involved I really wanted to make sure I get the advice correct. I think 99 out of a 100 times there would not have been an issue whatever I have done, but we all know the 1% would be this client!
I will get the forms sorted and stress that it is better I deal with Companies House type forms!