I have client with £1.9m of cummulative losses and £1.8m of share premium. They are now making profits and would like to 'tidy up' the balance sheet by converting the share premium to the profit and loss account.
I know they need a special resolution and solvency statement. Do they need to convert the share premium to capital redemption reserve and still show the cummulative losses seperately on the face of the balance sheet? If so it only worthwhile doing this when they are at a point of wanting to declare dividends for their investors?
Replies (5)
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What you're describing is a capital reduction - a reasonably new (past 6 years?) addition to the companies act.
It enables the directors of a private company to do just that ie remove balances from capital - shares, share premium etc and dump them into P&L reserves.
If all you are doing is passing a special resolution to convert share premium to distributable profits, you don't need a capital redemption reserve (as you're not reducing the share capital balance) and I'm not 100% sure that you need a solvency statement for the same reason. The accounting entry is Dr Share Prem, Cr P&L reserve, so the accumulated losses effectively disappear from the balance sheet to the extent that they're covered by the share premium.
You have to produce a solvency statement in advance of passing the special resolution required to do a capital reduction.
https://www.icaew.com/technical/legal-and-regulatory/company-law/company...
Hi,
You would need minutes, special resolution, solvency statement and CH forms and yes you can move the share premium to the P&L.
You do not need to touch the redemption reserve, if you have a separate CRR you can also reduce that to P&L, and also any unwanted paid up share capital
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