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:

  1. Draft a Special Resolution cancelling the shares – this must be approved by the shareholders
  2. 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
  3. Confirm that the solvency statement was made no more than 15 days before the resolution was passed – copied to the shareholders.
  4. 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.