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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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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: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 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.

 

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.

Customer: replied 3 years ago.

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?

Expert:  taxadvisor.uk replied 3 years ago.

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.

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Expert:  taxadvisor.uk replied 3 years ago.
I thank you for accepting my answer.

Best wishes.