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Share capital reduction - without court approval

The Companies Act 2006 allows a corporate entity to reduce its share capital without court approval.

This relaxation in the legislation may benefit a stand alone corporate entity but is most likely to appeal to group structures where companies have remained inactive following the transfer of trade to another group company.

Before deciding the most appropriate route to remove a company it may be advantageous to tidy up the balance sheet and distribute any available reserves.

Depending on the balance sheet the reduction of share capital may result in the distributable reserves being increased.

The share capital reduction procedure (without court approval) involves a special resolution and a directors’ solvency statement.

A company may be removed from the register by the more informal application for a dissolution (where the remaining non distributable assets are insignificant) or the more formal Members' Voluntary Liquidation (MVL) route where often the assets are greater and the creditors position may be less certain.

As with any corporate restructuring the tax position must be considered alongside the commercial motivation.

Helen Cain is a partner at Mercer & Hole. The views given in this blog are personal to the author.

 

 

Date: 10th May, 2010
Author: Helen Cain

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