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Tax consequences of issuing & selling new shares

Proceeds from selling the shares in a company

I have a client who is alloting more shares to the incoming shareholders. Currently, the share capital is £1,000 (1,000,000 shares of 0.001p each) and all of them have been allotted. A new incoming shareholder is interested to buy new shares into the company for which the company would firstly increase the share capital and then the shares should be alloted to him. The face value of the new shares is £10 each so if they issue 1,000 shares the additional share capital would be £10,000. The question I have is that can the company issue the same ordinary class of shares for two different face values (£0.01p and £10) if so do I just need to increase the share capital of the company and issue the new share certificates. Please help me the step by step process.

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18th Oct 2017 17:39

Why is your post entitled "Tax consequences of issuing and selling shares" when your question has nothing to do with tax?

And why have you posted anonymously?

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By jcace
to Tim Vane
18th Oct 2017 18:55

Are you sure the question has nothing to do with tax? The OP hasn't given specific details, so I would suggest it's not possible to say whether value shifting would apply or not.

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18th Oct 2017 17:44

It appears that this is not your area of expertise and you should speak to someone with the necessary company secretarial skills. Do you know the difference between market value and nominal value? As far as I am aware, "face value" is not a relevant term in this context.

Most importantly, do you and your client understand the implications for him/her/the company of issuing shares to a new investor?

Your client wouldn't thank you to know he/she was paying for advice from an anonymous internet forum, would they?

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18th Oct 2017 17:46

This is much more complex than the maths of getting 1,000 extra shares issued for £10k. The simple answer is that a single class of shares can't have two different nominal values, so you either issue 1,000 shares of 0.001p with share premium of £9,999.99, or you create a separate class of share.

But that's only the start. What do you want in the articles? Should there be a shareholders' agreement? Who's supposed to control the company, and how? What rights is the new shareholder to have - dividends, votes, distributions on a winding up, a seat on the board? What happens if they fall out, or one of them dies, or there's a takeover?

Your query heading asks about tax, but the question is about basic company law. I would suggest you go to a more experienced adviser who can help with both the company law and the tax. I'm not being funny, but you wouldn't try to learn to swim in deep water just by asking your mates on an internet forum for some quick advice, would you?

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By DJKL
18th Oct 2017 17:46

Is it the face value of the new shares that is to be £10 or is this merely the price to be paid for each share?

If different face values you need to create a different share class, and consider what rights each class is to enjoy.Do remember that the price can be more than the face value, a £1 share can be issued for £1,000, £999 into share premium, so you only likely want different share classes if there is a good reason to have different share classes.

By the way it will be £0.001 not 0.001p

Maybe if you advise what is to be achieved, who is paying what and what percentage ownership of the company/ voting rights etc they are to have when all sorted someone can advise.

You also may need to consider family relationship/employment status if same right sales are issued to different individuals for different costs.

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to DJKL
18th Oct 2017 18:22

Anonymous wrote:

I have a client who is allotting more shares to the incoming shareholders.

So you're fishing for shareholders, plural.

Anonymous wrote:

A new incoming shareholder is interested to buy new shares

Ahha, you have a bite!

What % share of the company are you trying to give this poor fish for his £10,000? I suspect what you're proposing is equally ranking ordinary shares, in which event your investor would end up owning less than one tenth of 1% of the company for his £10,000 (and which would mean you're valuing the company at a whopping £10 million!).

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to I'msorryIhaven'taclue
18th Oct 2017 18:24

Quote:

which would mean you're valuing the company at a whopping £10 million!).

And for that reason, I'm out.

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to DJKL
18th Oct 2017 20:53

The nominal value of the current shares are £0.001. Increasing share capital and then issuing different class of shares at a different price is straightforward. Instead of the share premium they want to increase the nominal value for the new allotment of shares to £10 each.
By the way I called the Companies house and they confirmed that shares for separate nominal values can be issued under the same ordinary class of shares.

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to fkhan74695
19th Oct 2017 09:45

You seem to have the answer from the horse's mouth. Why are you consulting us ?

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to DJKL
18th Oct 2017 21:29

The nominal value of the current shares are £0.001. Increasing share capital and then issuing different class of shares at a different price is straightforward. Instead of the share premium they want to increase the nominal value for the new allotment of shares to £10 each.
By the way I called the Companies house and they confirmed that shares for separate nominal values can be issued under the same ordinary class of shares.

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18th Oct 2017 18:27

Are these shares a penny each ? Or o.oo1p each ?

A million of either isn't £1000 so some checking of the arithmetic might be a start.

You can issue shares at a different face value to rank pari passu but they'd have to be a different class. Or you can issue existing shares at a premium.

Whether either course of action constitutes a good deal is another matter. If I were the prospective sucker, I'd be looking hard at what I was getting, because it seems very expensive with not much in the way of guarantee of a return on investment.

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By ms998
19th Oct 2017 11:12

As its an Anonymous poster and subject to disappearing - here is original question

I have a client who is alloting more shares to the incoming shareholders. Currently, the share capital is £1,000 (1,000,000 shares of 0.001p each) and all of them have been allotted. A new incoming shareholder is interested to buy new shares into the company for which the company would firstly increase the share capital and then the shares should be alloted to him. The face value of the new shares is £10 each so if they issue 1,000 shares the additional share capital would be £10,000. The question I have is that can the company issue the same ordinary class of shares for two different face values (£0.01p and £10) if so do I just need to increase the share capital of the company and issue the new share certificates. Please help me the step by step process.

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to ms998
19th Oct 2017 14:19

Interesting that Anonymous's identity is no longer masked when he or she makes a subsequent comment.

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