Reduced shareholding

Company X has four subscriber shareholder/directors (A B C and D) each holding one £1 share. When the company was formed all shareholders were equally involved in the business.

Now however A spends little time in the business and the others have agreed that A should reduce his shareholding to 4% of the company.

To achieve this it is proposed that there should be a bonus issue of shares so that each shareholder receives a further 31 shares. The share capital will then be 128 shares.

The company will then repurchase 28 shares from A leaving him with four shares and B C and D with 32 shares each.

The repurchase will be for £1 which is likely to fail the requirements for capital treatment. If so a cursory glance may suggest that as there is no excess over...