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Treatment of investment

Sale of shares in a group Company and cash received in parent Company

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Good morning, this is more than likely a stupid question but would really appreciate some help.

We have received an investment from two employees who have paid cash to parent Company for shares in a new Company recently set up.  The cash was received before new Company set up and  is currently in captial within parent company however, this is incorrect.  I want to raise the share transactions but leave cash in parent Company.  Has anybody had experience of this please?

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By Duggimon
09th Aug 2021 11:33

Are the employees investing in the new company or buying shares from the parent company?

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By paul.benny
09th Aug 2021 11:56

Good point by Duggimon.

If the shares were newly issued, your entries are credit share capital, debit intragroup debtor. You may also have to consider whether shares were issued at par or at a premium.

If investors bought from parent, the cash is already owned by parent -so no entries needed. But you need to account for any profit or loss on disposal.

Not the question but I hope the a parties have considered a shareholder agreement.

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paddle steamer
09th Aug 2021 12:36

Where do the investors believe the money they are investing in this newco will rest, by taking the funds into the parent rather than its sub are the terms agreed with the investors before their investing in the sub being met? This is more a legal question than an accounting question, the accounts can be dealt with readily via inter company account, but the removal of the funds from the newco may well be an issue.

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