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New Company and Club with Paypal Account

I have been asked to prepare accounts for a limited company for its first year of trade. It has modest income from membership subscriptions and more substantial income via transfers into the company bank account from a paypal account that one of the directors has access to. The paypal account was set up some time before the company incorporated and is used  by a club (that bears the same name as the company) but which existed before the company came along. The director is a founder of the club which is run by an ad-hoc committee and probably has no written constitution. The committe and club members are, to my knowledge unaware that some of the business is now being conducted through a limited company, part owned by this director. 

The director insists that the paypal account - through which other receipts and payments are also made is an account in the company's ownership- or should become so.

My view is money transferred into the company via paypal is trading income and any internal paypal transactions form no part of the company accounts.

Although I don't think there is any untoward activity, Is there also a potential MLR issue? 

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14th Feb 2011 09:33

MLR issues

I am not quite sure what you mean by an MLR issue.

In one sense there is an MLR issue with every client in that you need to comply with MLR which involves Customer Due Diligence, including (but not limited to) initial verification of customer ID.

There is also an obligation to report to your firm's MLRO or to SOCA if you know or suspect money laundering is going on.

Money laundering means some sort of involvement with monies or assets generated by, or derived from, crime.  So if there is no crime there can be no money laundering.  Most acquisitive crime (i.e. crime from which someone gets something) involves dishonesty.

You say that you do not think anything untoward is going on - which implies you do not suspect any dishonesty.  So it seems to me you have nothing to report.

As a separate issue though, you need to think through your advice to your client.  Are things being operated in a sensible fashion?  Do all the directrors of your client company understand the financial arrangements regarding the paypal account?

Your role is not to be involved in helping one director to keep secrets from the others!

David

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14th Feb 2011 12:41

The directors are not the issue

They are all aware of the situation (even if they do not appreciate the ramifications) - however the original parties to the paypal account (who are not, with one exception, directors of NEWCO) may not be. The issue is: Have the original club members/committe or whatever, consented to 'their' monies being paid into a limited company owned by only one of them (plus AN Other) and spent on costs billed to the company, even if that company is spending monies for the good of the 'club' - an assertation they may wish to refute. 

If the answer is 'no' then, my view is that the paypal account cannot form part of the company accounts - other than any transfers from paypal into the company bank account being treated as income and any paypal expenditure being ignored. 

I suspect the key will be in establishing who 'owns' the club and therefore its paypal account. Something tells me that no-one and everyone will claim title...

Thank you for your reply 

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