Reflection of reduction of the share capital of LLC in accounting

Let’s consider how the founders-residents of Ukraine of the limited liability company (LLC) reduce the share capital (SC) in view of the latest legislative changes. Here is an example of accounting for such transactions.

General rules

LLC has the right to reduce its SC. But it is not possible to change the nominal value particle ratio by reducing the nominal value of shares of all the LLC participants.

After you decided to reduce SC, the LLC executive body within 10 days in writing informs about such decision of each creditor whose requirements to the LLC are not secured by a pledge, guarantee or surety. Within 30 days of receipt of that notice, the creditors may apply to the LLC with a written request to execute one of the following measures for the choice of LLC within 30 days:

• ensure fulfilment of obligations by entering into a security agreement;
• early termination or fulfil obligations to the creditor;
• conclude another agreement with the creditor.

If the LLC does not meet the requirements within the established term, the creditors have the right to require from the LLC to terminate or fulfil its obligations ahead of time through the court.

If the creditor did not apply to the LLC within 30 days of receipt of the notification, it is considered that it does not require additional actions from the LLC to fulfil its obligations to it.

The reflection of SC reduction in the accounting is illustrated in Examples 1 and 2.

Example 1. Reducing the SC of LLC to the contribution amount that was not entered by the participant

Registered SC of LLC is amounted to UAH 700 000. One of the participants, which share in the SC is 20% (UAH 140 000), made its contribution not in full. Therefore, the general meeting of the participants of the LLC decided to reduce the SC to the amount of the contribution, which was not fully paid - UAH 40 000.

Example 2. Reducing the SC of LLC to cover losses

In the reporting year, LLC incurred losses of UAH 30 000 and decided to reimburse them, reducing the SC. The share of Participant 1 in the SC is 80%, Participant 2 - 20%.