Issue of shares v loan to company.

Client doesn't want to treat capital inflow as loan nor have they issued shares

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A  new client is a property investment company that has been in business 8 years. Three equal shareholders who have 5 shares each. For what it is worth they are all CA's and this is why I am second guessing myself. 

Basically, the issued share capital has been constant at 15 shares for the last 8 years. However, the share premium account has gone up. A few years ago each shareholder put £40k into the company so they could buy a new property. The share premium account went up by £120K but not the share capital. When I questioned one of the directors he said they didn't want to treat the inflows as a loan but as capital (to ensure the long-term commitment from all shareholders.) This happened in the 2013 FY.

In my opinion, your only two options are - a loan or issue of shares at a premium. There is no other way to get capital into a company. Am I correct?

If they should have issued shares in 2013 and have not yet informed Companies House, will they incur penalties? 

 

 

Replies (2)

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By johngroganjga
13th Apr 2018 11:04

There are no penalties for not issuing shares - only for issuing them and failing to tell Companies House.

I would tell the new client that the only way you can prepare the accounts is to show the £120,000 as loans until they issue new shares to capitalise them.

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By ms998
13th Apr 2018 12:59

If you are really desperate you could treat as capital contribution. This does have risks from a tax perspective and they are technically not recognised in UK company law.

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