Hi all,
We have 2 small companies, Company A & Company B. Both are owned 100% by the same director. Company A owes Company B £10,000 for a loan.
As company A is currently loss making and effectively worthless, the director wants to do a debt for equity swop. Swop £10,000 in debt for a 1p ordinary share.
I am just wondering what process we need to follow. I have looked online but cannot find much.
I would think:
1) Company A should have a meeting of the board (Director who is 100% shareholder with 2nd person who is Company Secretary), and pass a resolution and then prepare the minutes. Company B has the same director (100% shareholder) and Company Secretary so I would think the minutes would be more or less the same.
2) Issue a new 1 penny share at Companies House for Company A, and issue it to Company B.
3) Complete the double entry.
Company A: Credit Share capital (1p) and credit premium Account (£9999.99), Debit Loans payable account (£10,000).
Company B: Debit Bad debts (£9999.99) and debit share holding (1p) Credit Loans receivable account (£10,000).
Are there any other steps that should be taken in order to complete the Debt for Equity swop? Have a missed anything out or should any other forms be completed?
Many Thanks for any help.
Replies (10)
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i presume you
are looking to claim income tax relief on a negligible value claim on shares held....although if this is the case it will not work (not least because this is a transaction between companies - not between shareholder and company...!?) - but also if the value of the shares being swopped are nil at the time of the debt/equity swop then you cannot get income tax relief...the value (£10,000) must be the market value of the shares at the time of the swop....(I believe...)
And why do you think that a debt for equity swap is a necessary prelude to make the write off of the debt allowable for corporation tax?
technical basis for CT deduciton is?
Please could davidmjones1 explain the technical basis for claiming a CT deduction where there is a debt/equity swap in these circumstances.
Is it necessary to issue 1p share with the rest as share premium or would 10,000 £1 shares issued at par be OK too?
Thanks