There are no tax implictions involved in the issue of shares.
In your second example shares will be being allocated to investors for more than tyheir par value. This is issuing shares at a premium and the surplus moneys received must be credited to a share premium account. The use of that account is limited. Accounting Web advise:
'(!) If a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares must be transferred to an account called “the share premium account”
. (2) Where, on issuing shares, a company has transferred a sum to the share premium account, it may use that sum to write off—
(a) the expenses of the issue of those shares;
(b) any commission paid on the issue of those shares.
(3) The company may use the share premium account to pay up new shares to be allotted to members as fully paid bonus shares'
However, something is screaming alarm bells in my mind that the option (3) is no longer available, but unfortunately I cannot run it to earth. Suffice to say were it used to remover the share premium account the founders with 80% of the capittal would not be changed in their slice of the company and would still have a controlling interest.
Hello thanks for the info above.
For us I think the crucial question is still unanswered. We think there are tax implications for founders selling shares - either to the investors or to the founders themselves. for example if we sell shares at the point of registering the business, or if we sell shares at a later date to investors. There are tax implications for the investors and/or us? eg capital gains tax or other taxation?
This is certainly the case under US law for startup companies. Correct me if I'm wrong but I thought this was also true in the UK.
Deep apologies for the delay in response, I was changing base from the Far East to the UK. The founders themselves do not sell shares. The company issues shares on formation, effectively on registration or shortly thereafter, which is an entirely different kettle of fish. In that case there are no tax implications. If the founders at a later date sell some of their shares to investors then they will be liable for Capital Gains Tax (CGT) on any gain made in the transaction. Each individual has an Annual Exempt Amount of 11.1K to offset these gains the balance being taxed at 18% or 28% or a combination of the two rates depending on the individuals income including the gain in the year of sale. If investors subsequently sell shares and make a gain they would be liable to CGT also.
It is possible that these founders or investors, if they had over 5% or the equity, might be entitled to Entrepreneurs' Relief which limits CGT to a flat rate 10%, better than a poke in the eye with a sharp stick.
I feel you rating a tad unkind and it should be re-graded; I could not respond to you follow up question whilst I was travelling.