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.
I hope this is helpful and answers your question.
If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.