Hi,
I am after some advice please from anyone who has done or knows about converting a share premium account to distributable reserves. I have not had to do it before and it was a long time ago (over 20 years!) that I studied it as part of ACCA!
I have taken on a new client who had a illegal dividend paid last year meaning that their reserves brought forward is -£7,000.
Although their net profit this year is £6,000 they cannot pay a dividend to clear the directors loan accounts due to the above.
They have £22,500 in a share premium account where 2 shareholders paid £4 for £1 shares as part of the SEIS (3 years has now passed).
I have looked up how the share premium account can be converted (solvency statement & approval by shareholders) but what does the balance sheet then look like?
Currently:
Share capital £37,500
Share premium £22,500
P&L Reserves -£1,000
If this was moved to distributable reserves then hopefully it can be used to declare a dividend to clear the directors and shareholders accounts and mean they do not have to pay the S455 tax.
I hope there's enough info in the above to enable some useful advice - this is the time I miss working in a big office where you all have your strengths in particular areas!
Many thanks
Replies (6)
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You need to brush up on the permitted uses of the share premium account - which when I last looked were easy to find in CA 2006. But to save you some time I can tell you that they emphatically do not include being used to pay dividends. That is the whole point.
So you can't do something like a capital reduction to turn it into cash for the shareholders? That would be so nice! Why couldn't they have made capital reductions permissible in CA 2006?
The permitted uses I referred to are barring a capital reduction. There are hoops to jump through to do one of those, but if the company has the appetite ....