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Where Taxpayers and Advisers Meet
shareholder funds
morning, i am after some help for my fathers company. They have their end of year accounts and at the bottom it has a bit that says shareholder funds, this is around 500k. It is from retained profit so their accountant says. However they do not have this amount in their company bank in cash. is this money in this so called fund available to get out, especially if there is no money in the business account? Their accountant is not really explaining it well
Re: shareholder funds
This is an accounting figure showing the accumulated profits of the company. It is important under company law as it operates as a cap on the value of dividends the company can pay out. It is reflected in the total value of the assets of the company.
However, as a practical matter, if there is no cash to distribute, there is no cash to distribute. The profit may have been reinvested in any number of things that are considered assets but are needed by the company. These assets could be distributed "in specie" (i.e. in their current form) but you would need a good reason to do that - not least because they could trigger a capital gain by the company (if they have increased in value) which would be subject to corporation tax and an income tax liability on the shareholder receiving the dividend.
However, as a practical matter, if there is no cash to distribute, there is no cash to distribute. The profit may have been reinvested in any number of things that are considered assets but are needed by the company. These assets could be distributed "in specie" (i.e. in their current form) but you would need a good reason to do that - not least because they could trigger a capital gain by the company (if they have increased in value) which would be subject to corporation tax and an income tax liability on the shareholder receiving the dividend.
