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Mmmmm - sort of. It depends.
First of all, you'd debit the bank and credit the share capital, not the other way round.
How many shares is he buying for that ? Are they being sold for a price above face value ? Is that a fair price or is it an undervalue? He might possibly have a taxable benefit.
I assume he has good reason for wanting to put his hard earned money into something that's not tax allowable - and could, in theory at least, increase his tax bill.
My brain does feel like it's on a cliff edge right now (where did all the cliff edges come from these past couple of years?!) but I'm not sure it agrees.
You (the sole shareholder) have 10 shares in a company worth £100,000. The company issues a further 90 shares to you for £90. What is the value of your shareholding now? What have you gained?
I can’t check legislation at present but you will find provisions that treat a reduction in value of existing shares as consideration.
I was aware of the logic.
I wasn't aware of the rule.
I'll educate myself in February :-)
Luke, the question you should have asked was, "If the owner wants to invest £2,000 in his company is it sensible for him to put that in as share capital - and, if not, what would be a better way to do it?"
But if you had asked that you would be told, "Probably not, but it depends on all the circumstances - you really should talk to an accountant before you put the money in."
RM
But if you had asked that you would be told, "Probably not, but it depends on all the circumstances - you really should talk to an accountant before you put the money in."
RM
Agreed, if he gets his debits and credits mixed up, he really needs to take some professional advice.
Rather than the shareholder tying up £2,000 in a company where they already own 100%, why not use some of the money on professional fees to do it all properly and save money and tax? Or at least get it right. You will need an accountant to prepare the year end accounts anyway and it will be more expensive if the bookkeeping and shares and tax etc have to be sorted out a year down the line.
You've probably overloooked the disadvantage ....
Plan A - £2000 in the company's bank account.
Plan B - Less than £2000 in the company's bank account.