Assistance in share capital reduction in Muncan Republic



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Share capital reduction services


Pay a dividend to shareholders

If your company has accumulated losses, you may not be able to pay dividends as these losses affect your balance sheet. You may find yourself with accumulated losses if you’ve had a poor spell of trading, if the value of the company’s assets has dropped, or if a project such as an acquisition has been unsuccessful for example. The net effect of a capital reduction if you have accumulated losses is to effectively wipe out those losses and put the company back into profit. This means that the directors will be able to declare a dividend.

Redeem its shares

A company might want to buyback its shares (for example if a shareholder wants to retire) but it won’t be able to do this unless it has distributable reserves or issues new shares. If you neither have distributable reserves or want to issue more shares, you can reduce capital instead and cancel the shares in return for a payment in cash.

Pay cash back to shareholders

If your company is sitting on cash it doesn’t need for its day-to-day operations, for example, if it has raised funds for a project that won’t go ahead as planned, it can return this cash to shareholders and reduce its capital.

Group reorganization such as a demerger

Sometimes as part of a merger or an acquisition, or a demerger where a company splits out its trading activities into different companies, a capital reduction will be used as part of the transaction.

Transfer assets to shareholders

Rather than pay cash, a company can transfer non cash assets, such as property, to shareholders and cancel an equivalent value of shares.

Share capital reduction procedure

For both private and public companies, you will achieve a capital reduction by passing a special resolution of the eligible members of the company. A private unlimited company can reduce its share capital if the Articles of Association allow it to, and there is at least one non-redeemable share in issue after the procedure.

Tax implications

If you are planning to reduce capital, then you should take expert tax advice as this is a complex area. It’s probable that any reduction in capital won’t be treated as taxable income but may be viewed as a disposal for capital gains. Where the nominal value of shares or unpaid amount on shares are reduced, this would not constitute a disposal. But if shares are cancelled, then the situation is slightly different, as deemed or actual proceeds could arise and be subject to tax.

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