Where the company is solvent and the shareholders wish to realise their capital, the usual solution is found by placing the company into solvent liquidation [i.e. a Members’ Voluntary Liquidation (MVL)].
In order to take advantage of the various tax reliefs available to shareholders who receive monies from the company by way of capital distributions, it is necessary to instigate a formal liquidation process and appoint a Liquidator. It is the Liquidator who will make the capital distributions and ensure we obtain clearance from HMRC to conclude the winding up, having settled all known tax liabilities.
As discussed in our easy to read guide No Nonsense Guide, an MVL can also be used as a tax efficient way of reconstructing the financial affairs of a company, particularly where certain groups of assets or distinct businesses within a company are separated and allocated amongst the shareholders without the need to liquidate such assets in the first place. Often referred to as “Section 110 demergers”, section 110 of the Insolvency Act 1986 relates to solvent companies and allows a Liquidator to accept shares in return for the transfer of assets by the company in liquidation. The Liquidator in turn, distributes those shares to the shareholders of the original company.
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