Share capital – cancellation
How do I cancel share capital? Shares can be cancelled by reduction, redemption or buy back. The first step is to complete the necessary financial and legal processes to ensure that the cancellation is possible and permitted. These must be completed offline. Each of these processes can have potentially significant legal and tax consequences, and if not properly completed may be void. The company should seek appropriate professional advice before proceeding.
You can then use Kudocs to record and implement the changes (i.e. update shareholdings, issue new share certificates and generate forms to notify Companies House).
What is a share reduction? A company may reduce its share capital for various reasons, including to:
- create distributable reserves (e.g. to pay a dividend or to buy back or redeem its own shares);
- return surplus capital to shareholders; or
- distribute non-cash assets to shareholders.
The process is governed by Chapter 10 of Part 17 of the Companies Act 2006 and must be authorised by a special resolution either (i) supported by a directors’ solvency statement or (ii) confirmed by the court.
This information is provided for high-level guidance only. Please do not proceed without having taken the appropriate professional advice.
What is a share redemption? A company may redeem shares (at the option of the company or the shareholder), provided that the shares in question were issued as redeemable, and there is no restriction in the company’s articles preventing it.
The process is governed by Part 18 of the Companies Act 2006. In addition the shares must be fully paid up at the time of redemption and the redemption must be performed in accordance with the terms on which the shares were issued.
The redemption may be funded from:
- existing distributable profits;
- capital; or
- the proceeds of a fresh issue of shares made for the purposes of the redemption.
Once redeemed, shares are treated as cancelled and the amount of the company’s issued share capital is diminished by the nominal value of the shares redeemed.
This information is provided for high-level guidance only. Please do not proceed without having taken the appropriate professional advice.
What is a share buy back? A company may buy back its own shares for a range of reasons, including to return surplus cash to shareholders, increase earnings or net assets per share or provide an exit for shareholders.
The process is governed by Chapter 4 of Part 18 of the Companies Act 2006, subject to any restriction or prohibition set out in the company’s articles of association. In addition, the shares must be fully paid.
The buy back may be funded by:
- distributable profits;
- the proceeds of a fresh issue of shares made for the purpose of financing the purchase; or
- purchase out of capital.
Following a buy back the purchased shares must be:
- Either cancelled and the share capital diminished by the nominal value of the cancelled shares; or
- held as treasury shares.
This information is provided for high-level guidance only. Please do not proceed without having taken the appropriate professional advice.
How do I use Kudocs to record and implement the cancellation of share capital? In all actions, select {cancel share capital}. Select the type of cancellation (reduction, redemption or buy buy) and share class from the dropdown lists. Select {next step} to confirm and enter details of the cancellation. Review the cancellation, enter date and add supporting documents. If necessary, Kudocs will generate new share certificates.
Once confirmed, the cancellation will be registered by Kudocs and Kudocs will generate the relevant forms to be filed at Companies House (SH02, SH03, SH06 and/or SH19).
Can I reduce the number and/or nominal value of shares by reduction using Kudocs? Yes, you can do this via the Share Cancellation > Reduction process.
Will Kudocs automatically update Companies House on a cancellation of share capital? Not at the moment – unfortunately. Companies House does not – yet – support electronic filing of the relevant forms (SH02, SH03, SH06 and/or SH19).
Kudocs will still help you. The system will generate the form(s) fully completed for you as pdfs, so they can be easily downloaded, signed and uploaded directly at Companies House or posted to: The Registrar of Companies, Companies House, Crown Way, Cardiff, Wales, CF14 3UZ.