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Here’s a question received a few days ago from Ron:

Hi,
Last year I invested a large amount of money in a limited business. The business made some money but not enough to break even. I am thinking of winding the limited company up although we have been more successful this year/ So I can go into business with another partner. Is there any way I can recoup some of my investment before winding it up as a cost? Thanks, Ron

 

And here’s my answer:

Hi Ron,

Sorry to take so long getting back to you but I’ve been travelling for the last few days.

You ask if you can recoup some of your “investment” and the answer would depend on what exactly that “investment” was. The term should really only be applied to payment for share capital. Anything else is likely to be a loan from you to the company.

It will also make a difference if the company owes any money to suppliers of goods and services or to HM Revenue & Customs.

So, some possible scenarios if you have invested in shares:

1) The company owes more money to suppliers/tax man than it has in the bank. It is therefore insolvent and if you don’t stop trading and enter into a members voluntary liquidation (which you will have to pay for) you could be held personally liable for the debts the company owns to suppliers or tax man as the company will be “trading whilst insolvent”. You will lose your investment. (That gives you a capital gains loss which you can set against any future gains.)
2) The company can pay its suppliers/taxman and will have some money left over to pay some of what you paid for the shares. In this case pay the debts and pay what is left to yourself as a repayment of capital (again there will be a loss you can claim later) and have the company dissolved at the cost of £10 by applying for dissolution at Companies House.
3) The company can pay its suppliers/taxman in full and has more left over that it needs to repay you for your shares. In this case pay the debts and then pay the rest of the money to yourself as a capital distribution (there may be a taxable gain) before dissolving the company as above.

If you loaned money to the company then the situation would be as follows:

1) The company owes more money to suppliers/tax man than it has in the bank. You must not pay any of your loan back to yourself as this will be seen to be “preferring one creditor over another” and open you to legal action. The company is insolvent and if you don’t stop trading and enter into a members voluntary liquidation (which you will have to pay for) you could be held personally liable for the debts the company owns to suppliers or tax man as the company will be “trading whilst insolvent”. You may get some of your loan back from the liquidator – but probably not – and cannot claim this against any tax.
2) The company can pay its suppliers/taxman and will have some money left over to pay some of your loan. In this case pay the debts and pay what is left to yourself as a repayment of capital. Then have the company dissolved as in point 2 above. Again you can’t get any tax relief on the loss on your loan.
3) The company can pay its suppliers/taxman in full and has more left over that it needs to repay your loan. In this case pay the debts and then repay your loan with any excess dealt with as a capital distribution (there may be a taxable gain) before dissolving the company as above.

Note that if you apply for dissolution and owe money then you have to inform anyone you owe money to and they can object. They may also object if they pick up on the publication (in the London or Edinburgh Gazette) of the application. The tax man and banks are usually quick to spot this and the former often objects even if there is no tax due to give themselves time to check out any missing returns. If you don’t advise your creditors you are committing a criminal offence and will also be held personally liable for the debt.

I hope that helps. However it’s only general advice and there could be other variations on any of the above scenarios depending on your personal circumstances.

2 Responses to “Getting Investment Back From Limited Company”

  1. James Green says:

    Sue – there are too many potentially complex issues here. I think you need to talk this through with someone like the guys at Carraghyn – click here for details.

  2. sue says:

    I have 500 in the business account due to a minimum balance requirement but had considered this money used for other bills and it was more a place holder. Do I have to request this money back from HMRC to close the acct. Alos, I used personal money to pay off expenses while winding up the business. Now I’d like some guidance as to how to account for the following. All other hmrc dept (vat, paye, ct) are paid. If I had to do again, I would have paid myself a lower salary but I was estimating what would be left after bills. Should I list what is owed me as negative shareholder value? and will this complicate liquidation. And can not just dissolve as I am the only creditor. I was considering s253 but I can get back some of my loan”through terminal losses via trade loss which I think is much more straightforward as I am down 2500 and if I get a refund of corp tax, it will be1200.

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