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Reducing share cap to create distributable reserves

Reducing share cap to create distributable...

My client is a Ltd Co with share cap of c£50k and share premium of c£300k. There are no distributable reserves as the P&L a/c shows a loss of £250k. The co  is not trading any more but has cash of £80k and few creditors. It wants to pay a dividend so we are looking to reduce the share capital in order to create distributable reserves. I have done quite a lot of research but am having trouble confirming a few points. My proposal is:

1. Reduce share cap to £500 by cancelling shares. 99 out of every 100 shares would be cancelled so all shareholders retain the same percentage shareholding afterwards, but their share cap is reduced. A/c entries are dr share cap, cr P&L

2. Reduce share prem to nil. A/c entries are dr share prem, cr P&L.

End result is share cap of £500 and P&L of £99,500.

I know that we need to do a solvency statement, a special resolution, a directors' statement and a statement of capital to effect this. The thing that is concerning me is the cancellation of the shares. I have found lots of info about reducing share cap, but nothing specifically referring to the cancelling of shares. Can we reduce share cap by just cancelling some of the shares? And if so, are the a/c entries above correct or does the reduction in share cap have to be returned to the shareholders?

A further point is that we have lots of shareholders and as the company has been dormant for many years, we do not have up to date contact details for them all. I think we need 75% of them to agree to the resolution for it to go ahead, but what do we do if we cannot even get in touch with 75% of them?!

If anyone can help I would really appreciate it!



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By alancrm
24th Jul 2013 16:59

My understanding is that you need a special resolution within 15 days of the statement of solvency.  You must file form SH019, and you may need to revise the M&A depending on what the current ones say.


I don't know what you do if you cannot trace 75% of shareholders - I have never come across this I'm afraid.  Presumably you would also have the issue of paying them their share!!


I do not believe you have to return share capital - it can just create a distributable reserve. 


Try looking at ICAEW technical release 02/10.

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