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Debt to Equity?

What are the implications of converting Directors Loans to Equity?

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I have a client who wants to convert his directors loan account into equity ahead of a crowdfunding exercise.

What are the implications of this, and other than issuing new shares, is there anything else that needs to be done?

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ALISK
By atleastisoundknowledgable...
17th Jul 2018 08:40

Isn’t it just a case of issuing new shares which are paid for by the DLA (poss + share premium). DLA debt is no longer owed.

It does however sound like the sort of situation that someone technical make interject and say there may be issues down the line about the shares not being paid for.

Any chance the co has sufficient funds to transfer the cash and then receive it back? Or do it in tranches so the same cash moves back & forth?

Make sure the paperwork/minutes are all accurate & correct.

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By johngroganjga
17th Jul 2018 09:19

The implication is that he will no longer be able to withdraw any surplus cash tax free as loan repayments, and will instead have to take it in some taxable form. But presumably that is a price worth paying as part of the overall funding exercise.

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Replying to johngroganjga:
Slim
By Slim
17th Jul 2018 11:14

Quote:

The implication is that he will no longer be able to withdraw any surplus cash tax free as loan repayments, and will instead have to take it in some taxable form. But presumably that is a price worth paying as part of the overall funding exercise.

Could return the capital later?

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Replying to Slim:
By johngroganjga
17th Jul 2018 12:32

Yes of course, but still taxable - unlike loan repayments.

I said “some taxable form” - deliberately non-specific.

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Replying to johngroganjga:
Portia profile image
By Portia Nina Levin
17th Jul 2018 12:41

Why is a return of capital on a capital reduction taxable John?

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Replying to Portia Nina Levin:
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By Tax Dragon
17th Jul 2018 16:51

Portia, does atleast have a point? E.g. would the shares count as subscribed for per s135 ITA2007?

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By Portia Nina Levin
17th Jul 2018 17:40

What has s 135 got to do with a return of capital on a capital reduction?

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Replying to Portia Nina Levin:
ALISK
By atleastisoundknowledgable...
17th Jul 2018 18:19

Dragon is referring to my question (in answer #1) about the shares not being ‘properly’ subscribed for. I think you mixed it up with John’s point about tax on CapRed.

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Replying to Tax Dragon:
ALISK
By atleastisoundknowledgable...
17th Jul 2018 18:21

Quote:

...does atleast have a point?

...always pleasantly surprised when I see that written down ... until I get slapped down back into my place in the response!

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