Share Premium Account Reduction – Guidance Notes
The Companies Act 2006 introduced a way for private limited companies to reduce the amount of their share capital. This is also by virtue of section 610(4) of the Companies Act 2006, applicable to a reduction of the share premium account.
Private limited companies, as an alternative to passing a special resolution and obtaining court approval, have the option of reducing their share premium account by special resolution supported by a solvency statement made by the directors.
The solvency statement route provides a simpler and cheaper means for a company to reduce its share premium account.
These Guidance Notes should be read in advance of the preparation of the documents as the Guidance Notes detail which documents are required and the order in which they should be prepared.
The solvency statement must be made not more than 15 days before the date of the special resolution and must be available to the shareholders when they vote on the resolution to reduce the company’s share premium account.
In forming the opinions contained in the solvency statement, the directors must consider all of the company’s liabilities (including contingent or prospective liabilities). The directors commit an offence if they make a solvency statement without having reasonable grounds for the opinions expressed in it and the statement is delivered to the Registrar of Companies.
Please note that the solvency statement route is only available to private companies, however, both private and public companies can reduce their share premium account by special resolution confirmed by court order.
The templates referred to in this guidance note only relate to the process to be followed to reduce the share premium account. They do not consider any other aspects of the share premium account and the relative merits of reducing or cancelling it, or the accounting and tax implications. Specialist accounting/tax advice should be sought in relation to this.