Ltd compnay set up last year with £50,000 share capital, 80% held by owners, 5% by trade partner and remaining 15% by family and friends. The owners completely funded the business by equity and loan.
The business is yet to make a profit.
In calculating the interest on the loan they argue that the £10,000 worth of share capital that was issued to others was a loan from them to the company not them buying shares for those people. I clearly need to preserve teh equity figure at £50,000 so the only way I could see this happening would be to increase the loan balance and show a corresponding "virtual" debit balance which I would then have to write off as unrealisable, in which case a loss making company is effectively incurring a P&L charge to buy and issue its own shares - is this OK?
To add a further dimension when further funding was raised 12 months later the directors (on behalf of the company) decided to issue further shares to f&f so as not to dilute them. Again same call as above, the loss making company would ultimatley be incurring a P&L charge to do so.
Look forward to your responses, thanks
Stephen Burt