Anonymous
Share this content
0
283

Issue of shares in consderation for debt

Company A an LLP owns Company B (limited company)

Company C is an associate of Company A

Company B provides services to company C.  Company C wish to issue shares but to company A in consideration for this service.

How will this debt be written off in B's books and how will company A report this. (Perhaps B will be said to pay a dividend to A)?

is there any accounting or tax issue that could arise as a result of these? Also is there a tax advantage to company C for opting for this.

Replies

Please login or register to join the discussion.

By DJKL
07th Dec 2018 00:31

Re last two questions:

1.Yes, lots
2.Don't know.

Thanks (0)
07th Dec 2018 09:01

The debt in B’s books won’t be written off. It will be transferred to company A.

I don’t see any tax advantage to C in opting to issue shares rather than pay cash. Its taxable profits are the same either way.

Thanks (1)
07th Dec 2018 09:48

Hi,

To add to johngroganjga 's point - the debt in 'B' will be transferred from 'C' to 'A'. In Company A's books, this will be shown as 'Investment in C' with a liability to settle to Company B. Unless there is a specific reason to achieve this, I'd keep things simple by settling via cash.
G

Thanks (0)
to Gladstone
07th Dec 2018 12:00

Quote:

the debt in 'B' will be transferred from 'C' to 'A'.

I think you are mixing the companies up. My reading is that C is the debtor. B is currently the creditor. A will become the creditor in place of B. C will still be the debtor.

The rest is about how C discharges its liability to its creditor.

Thanks (1)
to johngroganjga
07th Dec 2018 18:06

I did mix up the companies, thanks for pointing out. What I really meant was that the only change on share issue will be that the 'receivable from C' will become 'receivable from A'.
G

Thanks (1)
avatar
07th Dec 2018 15:24

Does it matter if the debt is not transferred at market value and the shares issued at a premium?

Thanks (0)
By DJKL
07th Dec 2018 16:41

But company A is not a company it is an LLP which then may give rise to interesting questions re tax if "the transfer" is a dividend and also has interesting potential s455 issues if a loan up to "company "A ( which ought to be called LLP A) is made by Company B.

We are not told who /what the partners of LLP A are, individuals or bodies corporate, but I would advise the OP to in effect follow the "money /value"re each stage and think things through very carefully.

Thanks (0)
avatar
07th Dec 2018 17:46

Quote:

Company C wish to issue shares but to company A in consideration for this service.

It's not C's choice. (That's meant as a pointer to your question re B.)

Idle question: will B still be accounting for the VAT?

Thanks (0)
Share this content