How to distribute back to shareholder corporate funds from in-kind contribution?
- Thread starter flyingadventures662
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An in-kind contribution will be recorded as assets and equity capital (e.g., reserves or share capital).
Shareholders can decide that the company is over-capitalized and reduce the capital, resulting in money paid back to the shareholders. In such case, it's not regarded as profit distribution since you're paying back the initially contributed amount.
Shareholders can decide that the company is over-capitalized and reduce the capital, resulting in money paid back to the shareholders. In such case, it's not regarded as profit distribution since you're paying back the initially contributed amount.
OK, but how is this officially called... "capital payback", "capital payout"? How is it taxable and does it have anything to do with shares selling?
The problem is: I have unrealized profit, which, if I deposit to the company as an in-kind contribution, that will not be︀ taxable. But I was expecting later to distribute it as dividend which would be fine︁ tax-wise. But if I need to sell the increased shares, that would be taxable on︂ a higher rate.
The problem is: I have unrealized profit, which, if I deposit to the company as an in-kind contribution, that will not be︀ taxable. But I was expecting later to distribute it as dividend which would be fine︁ tax-wise. But if I need to sell the increased shares, that would be taxable on︂ a higher rate.
Normally you would need to prepare valuation acts and declare such payments with tax authorities to get exemption from taxation︀ later on (up to the extent of the contribution).
Officially it can be called capital︁ reduction as an example :
https://www.investopedia.com/terms/...ital reduction is when,or by a share buyback.
Officially it can be called capital︁ reduction as an example :
https://www.investopedia.com/terms/...ital reduction is when,or by a share buyback.
Please allow me to clarify. The Deed of contribution is a common law equitable instrument with which no formal issuance of shares is made. It is consodered non-reimbursable and non-refundable and can only be used for future share issuance.
Dividends can only be declared out of distributable reserves (capital contribution reserve is not distributable).
As such, the only options for redemptio are:
(1) share increase and subsequent reduction of capital (usually this requires a court order at least in Cyprus)
(2) Upon liquidation of the company
For more flexibility usually in corporate structuring scenarios we recommend other instruments such as convertible loans, redeemable preference shares︀ with dividend right and redemption rights at the Boards discretion.
PM me if you need︁ any assistance
Dividends can only be declared out of distributable reserves (capital contribution reserve is not distributable).
As such, the only options for redemptio are:
(1) share increase and subsequent reduction of capital (usually this requires a court order at least in Cyprus)
(2) Upon liquidation of the company
For more flexibility usually in corporate structuring scenarios we recommend other instruments such as convertible loans, redeemable preference shares︀ with dividend right and redemption rights at the Boards discretion.
PM me if you need︁ any assistance
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