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Share Capital

Company being bought 100% by holding company

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Company A has Share Capital of 1000 (£1.00 across 4 share holders Shareholder A 40%, Shareholders B 30% and C & D 15%)

Profit & Loss Reserves are £1m

Company B a holding company wants to purchase the full share allocation from Company A for £750,000.  

If this deal goes ahead what are account transactions to be shown in the wholly owned subsidary company and what is the effect on the share capital (if any) and profit & loss reserves?

Thanks

Replies (13)

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By Tax Dragon
16th May 2019 08:37

What money does the subsidiary receive or spend as part of the deal?

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Replying to Tax Dragon:
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By Danny_C
16th May 2019 08:39

The subsidary is initially going to receive £500k with the balance to be paid over a number of months/years to be agreed

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By Tax Dragon
16th May 2019 09:31

I'll be honest... that wasn't the answer I was expecting.

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By Wanderer
16th May 2019 08:44

How can company B buy the shares from company A?

It would need to buy them from the shareholders of company A (A, B, C & D).

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Replying to Wanderer:
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By Danny_C
16th May 2019 08:47

the offer is ultimately based on £750k split across the current shareholder/capital mix

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By Cloudcounter
16th May 2019 08:45

Are you sure that Company B is buying the share capital from Company A, and not from the four shareholders?

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Replying to Cloudcounter:
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By Danny_C
16th May 2019 08:48

yes that is what they are doing from the shareholders

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Replying to Danny_C:
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By WhichTyler
16th May 2019 09:27

Sweet deal, buying £1m of assets for £750k.

Are you sure you have described it properly?

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By chicken farmer
16th May 2019 08:47

Never mind the accounting treatment read up on the transactions in securities legislation especially IRC v Cleary

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By Danny_C
16th May 2019 08:51

thanks clearance has been sought

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By Danny_C
16th May 2019 08:50

thanks clearance has been sought

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By paul.benny
16th May 2019 08:50

The question doesn't make sense as written

The shareholders own company A. If they sell to company B, they receive the money. There are no entries in the books of company A as a result of the shares changing hands.

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By Duggimon
16th May 2019 12:50

Company A can't sell it's existing shares to company B. Company A does not own the existing shares.

You seem to be missing this fairly key point despite it having been made several times now.

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