Capital idea

Our client a profitable trading company has substantial cash balances of about £300 000.

Capital and reserves include share capital of £70 000 (70 000 shares of £1 each) and a capital redemption reserve of £30 000 which was created when the company bought back shares from a previous shareholder/director.

The current sole director/shareholder would like to extract up to £100 000 of the cash balance from the company. The company will continue to trade and so winding up is not an option.

He is already a higher-rate taxpayer and so a dividend will create additional tax liabilities. His spouse who is not a shareholder is also a higher-rate taxpayer.

I have therefore suggested a capital reduction under the Companies Act 2006. The company is able to meet any debts as they arise and the director could therefore make the required solvency statement.

My questions...