13.8 QUESTION ON SHARE PREMIUM
A company converts its Par Value shares (PV) – 100,000 shares in issue to No Par Value (NPV) shares in terms of Regulation 31. There is a rand balance on the share capital and on the share premium account, of R100,000 each. Is it necessary to move the balance of share premium to the NPV share capital account – stated capital or can the company leave it as a share premium account?
ANSWER
It would be a good idea to leave the balance in share premium with a view to a future payback of capital when the company is in a position to do so instead of paying a dividend. By doing it this way the company avoids appointing an independent expert or even going to the TRP because it’s regulated as it does not fall into the ambit of a share buyback. Paying back share premium is just a method of paying back share capital without all the formalities. The directors would need to obviously comply with all the distribution rules including the solvency and liquidity test.
The share capital account before the transaction is;
|
Share capital
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R100,000
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Par value shares of R1 each
|
|
Share Premium
|
R100,000
|
|
|
Total Share Capital
|
R200,000
|
|
After the transaction it could be as follows
|
Share capital – stated capital account
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R100,000
|
100,000 No Par value shares of R1 each
|
|
Share Premium
|
R100,000
|
|
|
Total Share Capital
|
R200,000
|
|
However, we could make it look like this;
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Share capital NPV
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R10,000
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10,000 No Par value shares of R1 each
|
|
Share capital PV
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R90,000
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90,000 par value shares of R1 each transfer to share premium.
|
|
Share premium
|
R100,000
|
|
|
Total Share Capital
|
R200,000
|
|
The share capital of the company in the above instance is 10,000 shares of no par value of R1 each. The R90,000 is retained in the old share capital account and should be transferred to the share premium account.