My employer a Ltd Co. has negative retained earnings and needs assistance with 2 points below;-
1. Shareholder A has retired and and now wants to sell his shares for £5000 (£1 per share x 5000) by either selling them back to the company or to another person. However, as the company has Negative retained earnings what is the best options available to enable Shareholder A to get his money?
2. Shareholder B deceased and the company is wanting to buy back those shares from the estate (i.e. Share buy back) via the Capital Redemption Reserve and Bank Account! Can this still be done even though they have negative retained earnings?
Thanks
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Replies (3)
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The answer is yes to both questions, although the options are limited.
A capital reduction can take place, but will require the directors of the company to provide a solvency statement, to the effect that the company will be able to pay its debts as and when they fall due. There will also need to be a special shareholders resolution approving the capital reduction.
There will need to be sufficient amounts available in share capital, share premium and share redemption reserve to be able to do this, and there must remain at least one share after the redemption is complete.
You will then need to file form SH19 to Companies House along with the solvency statement and the shareholders resolution.
If the shareholders are individuals, it may be advisable to get advance clearance from HMRC if the amounts are material to ensure that they are able to get capital treatment on the amounts, particularly if they are also employees/directors.
If you google company law capital reduction you should get more information on the process above.
