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Be Careful When Issuing Company Shares - #AskAMS
What kinds of issues should business owners be aware of when issuing company shares? We asked financial experts AMS Accountancy.
I have seen small Companies with a share capital of £40,000 upwards, which can create a debt owed to the Company for unpaid shares, and effectively removes virtually all the benefits of limited liability.
Example: With a share capital of £100, if the Company goes into liquidation, the shareholders can lose the value of their shares. This means they might have to pay £100 personally to the creditors. With share capital of £40,000, the risk becomes £40,000!
In order to cancel shares issued in error, the Directors must:
- Draft a Special Resolution cancelling the shares which must be approved by the shareholders
- Draw up a statement of solvency confirming that the Company can pay its debts and will be able to do so for the following 12 months
- Confirm that the solvency statement was made not more than 15 days before the resolution was passed – and provided to the shareholders.
- Complete a form SH19 and send to Companies House – with the other three documents.
Then, the shares will be cancelled and monies can be repaid to the appropriate shareholders – or the value of the cancelled shares can be used to clear/reduce the amounts owed for unpaid share capital – which brings the share capital down to a more practical, and safer, level.
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