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# Client of mine has a small business which has 1 x £1 share. Things

### Resolved Question:

Client of mine has a small business which has 1 x £1 share.

Things have grown for him and a friend would like to invest in the business. They have come up with a deal that the friend would pay £20,000 and in return receive 20% of the business.

I need some help in determining the simplest way of doing this....ie: how many shares to issue etc, what forms need to be completed (also at Companies House) and also what the double entry would be....can someone help?
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.

Hello and welcome to the site. Thank you for your question.

The company will be issuing shares at a premium.

A simplest way would be to issue 99 new shares making the total issued capital of 100 shares at £1 each = £100.

The original shareholder is allotted 79 shares making his total 80 shares with a nominal value of £1 each - this would be step one making the issued share capital 80 shares.

Subsequently on receipt of £20,000 -
20 new shares are allotted to the friend having a nominal value of £20. As the friend would be paying £20,000 to receive 20% stake in the business, £19,980 would be credited to share premium account.

Double entries for the above would be

Dr. Bank account (20,000+79) = 20,079 (cash received for issue of 99 shares)
Cr. Called up share capital (79+20) = 99 (issue of 99 shares with a nominal value of £1each)
Cr. Share premium account (20,000-20) = 19,980 (premium on shares issued to friend)

The form to be completed is SH01 - Return of allotment of shares.

The company should have a board meeting with a resulation of issue of shares as an item for consideration and record the passing of resolution before the above are implemented.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

One additional question - what about the impact on the original shareholder and his sale of 20% of his business for £20,000 - I assume CGT would kick in?

Expert:  taxadvisor.uk replied 2 years ago.

As the original shareholer is not selling 20% of the business yet... additional capital being raised by issue of new shares there is no CGT at this stage.

If the original shareholder had sold 20% of his holding then there would be a gain but it would mean the business is deprived of the needed investment.

Category: Tax
Satisfied Customers: 4803
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
Expert:  taxadvisor.uk replied 2 years ago.
I thank you for accepting my answer.

Best wishes.

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