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Investment into business - proof of funds?

What do I need to check/do?

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A client has set up a new limited company, they write books and do public speaking in a very niche area and also are launching an online shop.  They have a "friend" (their words) who has "invested" (also their words) £200k into the business however there is no agreement and they dont want the money back!  The client has issued 10% of the shares to this friend however they dont want to be paid a dividend should the company make a profit (I have my doubts it will ever make a profit but you never know...) so not sure why the shares were issued to be honest to them.

When I pressed the client they said that their friend was "investing in me as they believe in what Im doing"... 

Ive got ID for both parties and ran a check which came back fine however do I need to ask from where the funds have came from?  The whole thing seems a bit odd but I guess this friend could be a very wealthy individual and does indeed believe in the cause?  

Secondly, with no agreeement in place for the money can this be treat as share premium?  Ive suggested that the client speaks to a solicitor to get an agreement drawn up but both parties dont need it as they trust each other... (yup, heard that plenty of times before too).

Any pointers appreciated thanks.

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By Calculatorboy
23rd Sep 2021 16:20

Why didn't he just gift it personally to your client

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David Winch
By David Winch
24th Sep 2021 13:22

At risk of the obvious, do document your advice to your client that they have a solicitor draw up an agreement and do be clear that you are not acting for / advising the friend or providing any comfort to him / her about the future prospects of the business or the value or recoverability of the investment.
The MLR do not oblige you to make any enquiries / investigations which you would not otherwise make - but if you have a suspicion that anyone may be engaged in money laundering (for example if you have a suspicion that the investment monies are tainted by criminality) then you have an obligation to report that suspicion to your MLRO / the NCA.
David

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