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 beDr. 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.
I hope this is helpful and answers your question.
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Thank you for your answer. Very clear.
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?
Matt, thank you for your reply.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.I hope this is helpful.