Issuing large numbers of shares creates a debt to the Company, and can remove the benefits of limited liability. When a Company goes into liquidation, shareholders can lose the value of their shares because they might have to pay the share capital personally to creditors. With share capital of say £20,000, the risk becomes £20,000!
To cancel shares issued in error, Directors must:
- Draft a Special Resolution cancelling the shares – this must be approved by the shareholders
- Draw up a statement of solvency confirming the Company can pay its debts and will be able to do so for the following 12 months
- Confirm that the solvency statement was made no more than 15 days before the resolution was passed – copied to the shareholders.
- Send documents to Companies House with Completed a form SH19.
The shares will then be cancelled and monies can be repaid to the appropriate shareholders – or the value can be used to clear/reduce amounts owed for unpaid share capital bringing the share capital down to a safer level.