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Possible ways to account for Investment

What are the possible ways to account for Investment made by investor without issuing shares?

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A private limited company in Hong Kong with 2 shareholders has a new investor who is going to invest in the company. The company does not want to allocate shares at the moment due to some banking reasons but would be sharing the profit with the investor if the company makes any profit. After a year the company would allocate shares of the subsidiary company once it's been set up to that investor.

One of the options, I was thinking of was to allocate the fund from the investor as a loan and after a year we could convert that loan into share capital. (Is this option feasible?) Apart from this method, any other method we could try?

For your information: According to section 170 of the new Company Ordinance in Hong Kong, a company may increase its share capital without issuing new shares.

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By Bobbo
22nd Oct 2021 16:27

Ignoring for a moment that this is a UK forum so this is not the place for your question.

Section 170 of the HK company ordinance does indeed say a company can increase its share capital without issuing shares. However, if you read, you will note that such methods of doing this are generally by entering into transactions with the existing shareholders (e.g. issue of bonus shares), rather than a new investor.

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By johngroganjga
22nd Oct 2021 16:38

Before you start worrying about how to account for these events the investor and the company need to formalise the arrangement legally, in a way that they are both satisfied protects their interests. The accounting follows from what they agree.

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Replying to johngroganjga:
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By Tax Dragon
22nd Oct 2021 17:02

johngroganjga wrote:

The accounting follows from what they agree.

You mean "an account" of something happens after the something in question occurs and records its occurrence? You mean you need to know what the something is in order to be able correctly to account for it?

I better stop there, because I can feel the sarcasm in me start to rise to the surface and I'll get myself banned again. But it's amazing how many people seem to want to put the accounting cart before the transaction horse.

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Replying to Tax Dragon:
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By tom123
31st Oct 2021 08:30

I agree. When all you have is a hammer, every problem is a nail.

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Melchett
By thestudyman
23rd Oct 2021 09:13

It might be better to ask this question to a Hong Kong accounting community.

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