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Cash injection by shareholder

Cash injection by shareholder

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One of the shareholder currently holding 33 shares of £10 each paid initially £50,000 cash injection which means that his share capital value will be as follows:
Share capital 33 [email protected] £33 each = £330
The balance of £49,670 will be share premium.

Later on he gives further cash of £50,000 to the business for alterations to the property. Do we need to issue further shares to support the £50,000 injection of we can declare £50,000 as share premium for the share he is already holding.
Please reply.

Replies (9)

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By duncanedwards
20th Sep 2014 23:22

What does he want it to be?

It ain't share premium. He's paid for his existing shares.

Is it definitely for shares? Not a loan?

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Teignmouth
By Paul Scholes
20th Sep 2014 23:52

Following above...

If the £50K originally injected really was recorded as shares, ie the paperwork and annual return reflect this, then you are probably stuck.  If not then, per above, why not show the £330 as shares and £49,670 as a loan, plus the new £50K as a top up?

Obviously there may be stuff you've not told us, like other shareholders and their injections but, from what you say, it does seem silly to tie up the funds as shares when it's not necessary.

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By johngroganjga
21st Sep 2014 10:32

It isn't further consideration for the existing shares, because you said he's already paid the £50,000 for which those shares were issued. The new £50,000 is clearly for something else. No-one on here can tell you whether it's new shares or a loan. You just need to ask your clients what has been agreed.

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By King_Maker
21st Sep 2014 12:49

The extra £50,000 can only be

The extra £50,000 can only be for more shares  or a loan or a mixture of both.

If a loan, is it with or without interest?

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By Farrukhshahzad
21st Sep 2014 15:16

Thanks
He originally paid for the shares. This extra £50,000 is new injection. If we issue more shares to him, do we need to increase authorised share capital and issue new shares ore is there a different way. Currently there are 100 shares in total and there are three shareholders with 33 shares each and one having 34. Two of shareholders are directors and this new injection is by a shareholder who is not director. How do we increase share capital and what would be the consequences on other shareholders if we increase his share capital. Do we need to increase theirs as well or some other option? The other shareholders who are also directors havent injected anything other than intial injection which is declared as director loan.

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Replying to paul.benny:
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By taxguru
21st Sep 2014 15:36

Equity or loan

Farrukhshahzad wrote:
Thanks He originally paid for the shares. This extra £50,000 is new injection. If we issue more shares to him, do we need to increase authorised share capital and issue new shares ore is there a different way. Currently there are 100 shares in total and there are three shareholders with 33 shares each and one having 34. Two of shareholders are directors and this new injection is by a shareholder who is not director. How do we increase share capital and what would be the consequences on other shareholders if we increase his share capital. Do we need to increase theirs as well or some other option? The other shareholders who are also directors havent injected anything other than intial injection which is declared as director loan.

The whole story as it looks to me:

- two guys may have founded a company with 100 (50:50) shares and have been the shareholders and the directors

- this new guy joined them and the company was valued at x, 33% of which was either a) jointly transferred by the two shareholders or b) fresh shares issued by the company diluting their ownership.  If it was a) there is no premium whilst b) does create a premium account. 

In any case if the new guy wants to inject more funds it could either be equity or loans ( or may be a convertible loan). If equity shares then, normally shares will need to issued to all in proportion of their respective holdings. Alternatively, it could simply be a loan.

Either way all this involves paperwork, complying with company and tax laws. 

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By johngroganjga
21st Sep 2014 17:09

Like I said you need to ask your clients what the deal is. Are the two other shareholders content for their interests to be diluted by the issue of further shares to the one introducing the new funds? No-one on here can tell you what your clients have agreed. You need to ask THEM.

When you know what the deal is, if you are not clear what paperwork is needed to implement it, or how to account for it, by all means report back.

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By mydoghasfleas
23rd Sep 2014 12:45

No fresh shares so a disposal by orginal shareholders

If the explanation is accurate there were 100 shares in issue, split 50:50.  There are still 100 shares in issue now split 34:33:33, so the original shareholders have certainly disposed of some shares.

You really must find out exactly what was agreed, aside from company law compliance you have CGT to consider, maybe a gain or a loss, entrepreneur relief and you need to establish if the parties are connected. 

There is more than one transaction here because newbie has made two share purchases - one from each director (what consideration was given on each transaction?); then he has advanced money to the company. 

As total payments of £50,000 have finished up in the company, either newbie has spent more than £50,000 (share purchase value + £50,000 into the company) or the proceeds from the sale of the shares have been loaned to the company by the existing directors and newbie has advanced a lesser amount.

Clearly you know what the net outcome is but you have no inkling, without asking, of how it got there.  It's like trying to work out what numbers were chosen in Countdown simply from the answer - it does not work!

 

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By johngroganjga
23rd Sep 2014 19:19

Not sure where the above analysis comes from. Where are we told that any shareholder in this company ever held 50 shares, or that there has ever been a transfer of shares by one shareholder to another? On the contrary we are told in terms that one particular shareholder subscribed for 33 new shares at £50,000 in total. We are told that there are another 67 shares in issue held by two other individuals.

In any case the question is not about the original issue of shares but about a new unspecified transaction involving another £50,000 (perhaps that's where the confusion arises). As you rightly say we can't tell the OP what that transaction was as we are not clairvoyant.

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