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Seablue Limited which has paid up share
capital of only £2 has ceased to trade. The director
of the company John Jones is also the sole shareholder. To
avoid the costs of a liquidator in an MVL John decides to
bring the life of the company to an end by following a procedure
similar to that outlined below.
- Firstly, John takes tax advice
from his advisers as to his proposed course of action.
- John sells all the assets,
pays the creditors and is left with a sum of £100,000.
- John obtains a tax clearance
that if he returns £99,998 (less the £2 share
capital) the Inspector of Taxes will treat the distribution
as a capital dividend.
- John pays himself the £99,998
and pays the £2 share capital to the treasury solicitor
(share capital cannot be returned to shareholders without
a formal liquidation)
Comment
If the share capital in the above company
had been £5,000 or more a members voluntary liquidation
would have been the most cost effective route to follow.
The reason for this is that if the liquidation
route is not followed the amount of the share capital itself
cannot be returned to the shareholders. It has to be paid
to the treasury.
In appropriate cases there is a further
alternative of avoiding this loss of share capital. That relates
to using the "reduction of capital" provisions in
the "Companies Act".
To establish the most cost effective
route for your company take professional advice.
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