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Sloppy company formation by prospective client

Sloppy company formation by prospective client

Prospect has formed his new company subscribing for 10,000 shares without appreciating he might have pay for them.
What is the simplest way to rectify this and reduce the shareholder's liability?
One share would have been sufficient for the purpose and even 100 a bit of a luxury!

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07th Nov 2011 12:42

form again

and strike the other one off - thats about £50 - failing that alter the articles - not mad on the new system - if they havent actually been subscribed for you may get away without a fullscale cap reduction?

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07th Nov 2011 13:50

How much of the share capital has the company called for?

Hi Andy - I think I'm right in saying that a company may alot 10,000 shares but if it only calls for 1 share to be paid for than that's all you need record.  Certainly the accounts only need show "called up" share capital.

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07th Nov 2011 14:01

so would they then technically be debtors

what do the articles actually say, i thought that for new style companies you had to state what the share capital was and that was that - is there allotment ,in the old sense, any more

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07th Nov 2011 15:21

Client wanted to look big

I had a client who had authorised share capital of hundreds of millions of shares and the directors were based in Australia/South Africa and Companies House couldn't accept the accounts via their online system. They had to reduce the number of shares!

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07th Nov 2011 15:46

Maybe it's me

On closer examination, looking at the initial shareholdings registered with Co House against the single shareholder's name we have:

No. of shares 10,000

Nominal value of each share £1

Amount unpaid £1

Amount paid £0

I was thinking the prospect was confusing authorised share capital with issued share capital, but the confusion might be mine all along. Go on put me out of my misery.

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07th Nov 2011 15:53

Authorised?

I thought there isn't authorised share capital any more. The shares disclosed are issued.

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07th Nov 2011 16:33

@ Peter

Me too, but I'm happy to be corrected

What do you think the numbers I have quoted above mean? I thought they would mean 'issued' but if they were, the amount unpaid would be £10,000, not £1.

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07th Nov 2011 16:39

One share

I know it sounds silly but I think the figures refer to one share. I don't know how they can do that when  not all the shares are paid.

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07th Nov 2011 16:42

Could you have part paid shares instead?
If you get the paperwork right the company could have the shares as issued but not called up and fully paid, making share capital at present £1.

The shares are in effect just issued at present so it may be easy to reduce the capital down to a more edible figure.

Not sure how to do this in practice.

We had a client who had some new shares in an established trading company that were effectively worth £29000 or thereabouts. We treated the shares as part paid, thus avoiding the balance unpaid being treated as a debtor in the accounts and giving an overdrawn loan for the director etc.

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07th Nov 2011 16:56

per share

Hi you're right there is no authorised capital any more.  The shares listed on the IN01 form will be issued shares.  If the statement of capital reads:

No. of shares 10,000

Nominal value of each share £1

Amount unpaid £1

Amount paid £0

 

Then there are 10,000 shares of £1 each in issue all unpaid.  The Amount unpaid/paid shown is per share

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07th Nov 2011 19:44

To recap

Am I right in thinking then that in this case 10,000 shares can be issued and only one subscribed, and in a dormant company situation where no trading, Balance Sheet would show £1 shares and £1 Dirsloan or Cash?

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07th Nov 2011 20:42

No

Shares are issued after being subscribed so you can never have less shares issued than subscribed. 

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08th Nov 2011 13:34

Getting a bit technical

Mookgirluk has set it out correctly.  I think a lot of confusion comes when we talk about subscribed, issued, called up, unpaid etc etc.

My understanding is that a subscriber merely states that s/he will take at least one share (ie no numbers quoted any more) thereafter shares are alotted (ie made unconditionally available to the share holder) and become "issued" once that person's name appears in the register of members.  This latter part has always been the most important bit and I've inherited companies with shareholders who actually have no rights whatsoever as their name has never been entered in the register.

Once issued the company then decides on when to "call" upon the shareholder to pay his or her money, so you then have "called up" share capital and as money is received the share capital becomes "paid up".

I'm pretty sure that you only start recording a debtor (for unpaid shares) after the call has gone out, ie until then it's still unpaid share capital but with no need to record it in the books.

In this case therefore, if only £1 has been called & paid then the balance sheet & notes will just show Called up share capital (alotted, issued & fully paid)  £1.

The time when this may become an issue is if the company goes bust, at which point the shareholder will be required to make good the unpaid share capital of £9,999.

If in doubt then a share cap reduction can be done, details on Cos House and, given the new rules on Bona Vacantia (£4K share cap limit now gone), this may be the best approach.

I'm sure there are gaps in this but this is how I've approached this sort of occurance.

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09th Nov 2011 11:09

Check incorporation documents

Why not download the incorporation documents from Companies House for £1? They should show what was done!

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By TOC
09th Nov 2011 11:36

Can't see that there is a problem. Correct me if i'm wrong but you only have to pay for the shares which are actually issued.

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09th Nov 2011 11:46

share capital

Was this investment of £10,000 demanded by the bank? is he borrowing and needed to demonstrate his own willingness to invest in himself?

If not then it's an odd thing to do....why didn't you set it up for him??

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Glennzy
09th Nov 2011 12:04

@ Sue

sue scherzo wrote:

Was this investment of £10,000 demanded by the bank? is he borrowing and needed to demonstrate his own willingness to invest in himself?

If not then it's an odd thing to do....why didn't you set it up for him??

Why didn't I set it up for him? That's an easy one - he set it up himself five months before I got the first telephone call to meet him.

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Kent accountant
09th Nov 2011 12:14

I think Paul has got it right

10,000 shares have been allotted to the shareholder, but only one share has been issued and needs to be accounted for . . . . at present. The danger is that in time to come, payment for the 9,999 will be required unless pre-emptive action is taken. The answer is for me to delve into the Companies House literature I guess to see how best to do this. 

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By KH
09th Nov 2011 12:02

Companies House annual returns etc can be confusing

Don't stake your life on the info shown in Companies House returns. It is quite normal to have mistakes round amounts paid up and unpaid on shareholdings ... when I questioned CoHs about a mistake I wanted to rectify in an annual return, the response was "just leave it as it is till the next return is due" ... in other words, mistakes over amounts paid and unpaid are irrelevant as far as CoHs is concerned.

Regarding "authorised" share capital, this no longer exists. The only share capital to record is that which has been issued.

Mind you, I could be wrong! LIFE!

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09th Nov 2011 12:09

Regular occurrance

I get this all the time.

People set up a company and then look for an accountant. Most times nothing goes wrong but sometimes there's a disaster.

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09th Nov 2011 12:30

Its not that bad

Don't mess around with part-paid shares you will potentially get into some horrible problems if the company becomes profitable and there is a share sale because you could find an income tax charge (employment related securities Part 7 ITEPA 2007 and all that and then there is the beneficial loan issue.

More simple to perform a capital reduction, there is no need for a tax clearance at this stage (providing of course there is no tax avoidance motive). I would be inclinded to just change the shares to 0.01p share instead - pass a resolution, file new articles, and a form with Co House...You could also sub-divide or create new share classes while you are at it.

Happy to assist if you need assistance.

Virtual tax support for accountants: www.rossmartin.co.uk

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09th Nov 2011 14:04

one of my favourite posts of the year

its highlighted the shocking impact of 2006CA - anyway i still dont see why you just dont forget about the company and have struck off - has it been trading has it got a bank account etc

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09th Nov 2011 14:19

Thanks NIchola

@ Carnmores - oh yes, prospect formed the company and it's been trading for 4 months but it's highly improbable that it;s profitable at this stage.

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09th Nov 2011 14:21

Shocking Impact of 2006CA?

I've had this situartion happen several times over 20 years, not just since the new act came in.  Also, overall, I'm not sure I've come across much else that's "shocking" in the Act, if anything, I think it's simplified things.

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09th Nov 2011 14:22

Why the need to reduce the par value of the shares

Under the Companies Act 2006 you can reduce the share capital.  So why not do this?

In some Memoradum/Articles the directors have the power to strike out any shares not fully paid, if this is available use this.

Finally as suggested by another poster, create anew company and transfer the trade and wind the old up.

 

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carnmores
10th Nov 2011 13:22

Ask Companies House

Just a thought - have you spoken to Companies House?  They may be able to correct the initial documents with a lot less fuss if you explain there was a simple mistake in the incorporation documents filed.

Not sure if they will do it, but it will look better than changing things at this stage and (as the company has been trading) you cannot simply strike if off and start again.

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10th Nov 2011 14:08

Huw

I gather you haven't talked to Companies House recently about documents submitted?

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chloeB
02nd Dec 2011 22:03

Talking to Companies House

Peter

 

Are you saying they are less accomodating than they used to be?  Perhaps you are right. 

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02nd Dec 2011 22:08

Usually

Yes, they usually are less accommodating. If you find somebody in the departments behind the call centre they may be more flexible.

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