Share Premium Account Reduction – Guidance Notes

Section 610 of the Companies Act 2006 provides that the provisions of the Companies Act 2006 relating to the reduction of a company's share capital apply as if the share premium account were part of its paid up share capital. 

This means that the process for reducing a company's share premium account is exactly the same as reducing its share capital and that the requirements in section 644 of the Companies Act 2006, relating to the compliance statement and statement of capital (which is made on Form SH19) apply to a reduction of the share premium account.

Use the solvency statement route to reduce a 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.

Key timing and director responsibility points

• 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.

When this route is available

• The solvency statement route is only available to private companies.
• Both private and public companies can reduce their share premium account by special resolution confirmed by court order.

What these templates do and do not cover

• 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.

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