Hi,
I've not had to deal with this before so any guidance would be greatly appreciated.
My client has a Ltd co, there are 2 shareholders- each with 1 share of £1.
The ltd co has paid £250 to one of the shareholders for the sale of his share to the other shareholder.
What is the double entry for this in the accounts? I'm thinking the £250 should have been paid by the other shareholder?
Can I just transfer the £1 share to the other shareholder via the DL?
Thanks!
Tracy
Replies (6)
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Assuming the selling shareholder is also a director, then the double entry is debit director's loan account, credit bank. As you say, the sale of shares from one individual to another is nothing to do with the company.
You don't ask about any tax implications where £250 doesn't represent arm's length market value, so I assume you and your client have already considered this?
EDIT: beaten to it by Ruddles
the secoond question
is "I am thinking the £250 should have ben pad by the other shareholder?" and you are thinking correctly.
As Kevkava says this isn't a transaction involving the company. It is the sale of a share from shareholder A to shareholder B and any money should be paid from B to A. It needs no bookkeeping in the company but the register of members needs to reflect it.
The payment of £250 by the company to A (the seller, not the purchaser) is not really anything to do with the shares, so it is as others have said a loan to A.
There are two tax points to consider (although if the value really is £250 then they are probably too small ). One is A's capital gain and the other is his director's loan account.
It's the 'building up' that's crucial: how much are the shares now worth on the open market? What relationship is shareholder A to shareholder B? Is B an employee of the company? etc. Answers to these (and other) questions need to be confirmed before the full tax implications can be assessed.