Share premium conversion to reserves

Advice about converting a Share premium account to reserves to allow a dividend to be paid

Didn't find your answer?

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)

Please login or register to join the discussion.

By johngroganjga
09th May 2018 13:31

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.

Thanks (1)
Replying to johngroganjga:
Portia profile image
By Portia Nina Levin
09th May 2018 13:48

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?

Thanks (0)
avatar
By Lottie1
09th May 2018 14:19

But I have found other threads on here which talk about converting share premium to share capital and doing a capital reduction?
What have I missed?

Thanks (0)
Replying to Lottie1:
By johngroganjga
09th May 2018 14:59

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 ....

Thanks (0)
Replying to johngroganjga:
Portia profile image
By Portia Nina Levin
09th May 2018 15:10

So you can do it? I thought you said you couldn't?

Thanks (1)
avatar
By Lottie1
10th May 2018 11:31

So does anyone please have any advice on this?
Has anyone done it before that could shed some light?
Many thanks

Thanks (0)