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Ltd Co Shares

Raising Capital

Hi All, 

I would really appreciate some help if possible.

I have a new client who owns 100% of her ltd company and the share capital is 100 shares at £1 each currently. She has found an investor who wished to invest £10,000 into the new company for shares in the business.

If she agrees what would be the best way to release new shares with the original director/ owner to still keep majority ownership of the company?

Thanks

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By mrme89
20th Oct 2017 21:40

If your client wishes to retain ownership (I.e. be a majority shareholder), they will need to keep - at least 51% of the shares.

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to mrme89
20th Oct 2017 21:36

Hi, thanks for your reply.

Would this mean creating an extra 22,000 shares keeping 12,100 shares and selling 10,000 shares?

If she has already paid her £1 per share (£100) would she have to pay the extra £12,000 to keep the other shares?

Thanks

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20th Oct 2017 21:52

You don't need to issue shares at par. Use of a share premium account sounds like a good idea here.

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to ChrisScullard
20th Oct 2017 22:14

Hi Chris

So raise another 1 share so that the owner keeps 99% of the company the new investor pays £10,000 for the new share £1 goes to bank and share capital £9,999 goes to bank and share premium account.

Would this mean the investor gets 1% if profits as dividends and owner gets 99% of dividends?

What happens to the share premium account in the future?

Thanks

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to Dean Ainslie
21st Oct 2017 06:13

I think you need to find out what share of the equity your client and the new investor have agreed the new investor will have. That’s just a matter for negotiation.

When they have decided you can tell them how many shares the company should issue to the new investor.

Yes - future dividends are paid in proportion to the number of shares, not in proportion to the cash amounts paid for the shares. That’s the point of shares.

The share premium account stays on the balance sheet.

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to Dean Ainslie
21st Oct 2017 09:47

I guess you also need to clarify whether it is the parties' intention to treat the £10,000 as:

(i) a permanent investment in the company, in exchange for (newly issued) shares, which would effectively mean that if and when the £10,000 is ever "repaid" by the company it would naturally be distributed in proportion to the shareholders' equity shares (which latter matter John has explained to you, above); or

(ii) a loan to the company, repayable in full to the investor at some undetermined future date. Dragons' Den investors often give the impression they expect their investments to be repaid as if they were loans (except they want also to keep their shares ie they want the penny and the bun); or

(iii) a purchase of shares from the existing shareholder (so that the £10,000 is banked in the company as a DLA credit for the existing director).

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to I'msorryIhaven'taclue
23rd Oct 2017 18:19

Hi thanks for this,

I will discuss this with the client.

With option 1, if the company repays the balance say over 4 years, at the end of year would we have more reserves to distribute or would we wait until the full 10K is paid back.

Option 2, does this mean that the amount paid above par sits in share premium and rest in share capital account. when loan is repaid what are the double entries?

Option 3, what would the entries be here and does share premium still come into this if they are sold above par.

Thanks

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to Dean Ainslie
23rd Oct 2017 20:32

Dean, reread ISIHAC's contribution and cross out the words you don't understand. Or try this:

Option 1: company issues new shares to investor - shares like those your client has, or a different sort of share;
Option 2: investor makes a loan and gets no shares;
Option 3: investor buys part of the company from the existing shareholder. In this option, the money does not go to the company(*) - why would it? The existing shareholder has a capital gain.

If you need to cross some of my translation out, then you really need to refer the question to another advisor. You maybe should do that anyway - your 18.19 post was hardly the most confidence-inspiring. There's no shame in buying in advice - lots of folk do it.

(*) - edit - not directly as part of the share sale. The money could be introduced via DLA as ISIHAC notes. But think of that as a separate transaction or you'll get confused. Clearly.

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to Tax Dragon
24th Oct 2017 09:15

Actually T.D. what I had in mind at option 2 is the Dragons' Den style arrangement where an investor buys into the company, receives some ordinary shares (just as in option 1), but expects the money he has invested to be "repaid" not as a distribution in proportion to the new shareholding (as in option 1), but instead as though he were a preferential creditor - plus of course he's going to keep the shares even when he has been thus repaid.

It's what the Dragons' Den gurus try to pull - that much is evident from their occasional tv agreements involving partial buyback of the [Dragon's] shareholding "when the loan is repaid". And it seems to have set the mode for would-be investors who are fans of the show, even though the proposition appears unfair. Ludicrous, even.

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By Bobbo
to I'msorryIhaven'taclue
24th Oct 2017 10:03

Sometimes the Dragons are nice and propose that when their full investment is repaid they will at least reduce their shareholding by x%!

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to Bobbo
24th Oct 2017 10:57

Precisely, they want the penny and the bun (or at least a large bite of it).

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By Ruddles
to ChrisScullard
23rd Oct 2017 20:57

I’d also recommend a new class of share.

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