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bigduckontax, Accountant
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I'm founding a startup company with a friend. We want to get

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I'm founding a startup company with a friend. We want to get investors onboard to provide seed funding. Is it better to:
1) split the company 50/50 now between me and my business partner. Then sell shares to seed investors later?, or
2) draw up a founding agreement and split the shares between investors and founders at the same time that the business is registered?
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
I would suggest that the second route is preferable. However, have you considered funding the company by means of outside investors' loan capital? The danger of bringing investors in is that you could quickly loose control of the company, particularly if their investment is large. Unless you and your colleagues' investment in total exceeds the investors total then there is no problem. Remember things can go sour very quickly in business relationships.
I do hope that I have been of a little assistance to you.
This question has re-appeared with no follow up.
Customer: replied 2 years ago.
1) Why is the second option preferable? In particular what are the tax implications of issuing all the shares to investors and founders in the beginning versus issuing shares to investors at a later stage?

2) Shares can be sold at different prices for different investors - for example if we as the founders put £2000 seed capital into the business at 40% each. then we sell the remaining 20% of shares to investors at £20,000 then the investors have put in much more money but do not have control. What are the tax implications here?

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.

A hunt through reveals that the (3) option is still availabe under the Companies Act, 2006 the latest piece of legislation.
Customer: replied 2 years ago.

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.

Customer: replied 2 years ago.
My question is not fully answered see reply below

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.

bigduckontax and 2 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
Hi Keith this is excellent thank you! Good luck with your move.
Thank you for your support.
Move now completed, thank you.
Customer: replied 2 years ago.
One final question- is it possible for us to keep a portion of shares unallocated at the time we register the business? This way the company can sell shares to investors at a later stage. This avoids us as founders being liable for personal gains through capital gains taxation. Is this correct?
This is crucial because we want to register the business ASAP then go looking for investors- we don't want to delay registering the business.
Yes, you can. The company does not actually 'sell' these shares to investors, it merely allocates more shares against contributions to its capital accounts..