Payment of & Allocating shares

[aceparts_com]

As I've mentioned before, i've been looking for funding for a new company. Question is, now I've been offered some, what's the best way of allocating the shares etc?

Do I?

1) Pay money into account as a LOAN for the shares (obviously when the loan is repaid, the shares were effectively free)

2) Pay money into Company and issue shares, say 5 shares for £5K. Company then owns the money

3) I take the money and then loan it to the company (I guess I will then pay gains tax on the profit from the shares)

Any advice would be appreicated.

[aceparts_com]

No? I'll just drift off the bottom of the page.....

[ninja_eli]

Your question is not that clear, but I'm assuming you have received external funding for your own business. If that is the case, then it depends on who has received the funding, you or the company.

If it is a loan to you, you can purchase shares in the company, but you've got to realise that you are a shareholder and entitled to dividends and to get that money back, its not as easy as if you were lending it to the company (company would need to do buy back).

You could lend the money to the company, such as a directors loan etc.

Personally lending the money may be more attractive, if you wish to pull your money out easier, otherwise buying (issuing) shares improves the company's balance sheet and can help to provide against any possibility of insolvency in the earlier years of trading, where a loss is often incurred, real or otherwise.

It depends on what you ultimately want to achieve, and the size of the operation and cash input.

If you are unsure, its probably easiest to lend the money to the company and convert it to shares later if you wish.

I;m confused by your comments 1) What do you mean the shares will be free? What shares are you referring to if you are lending the money? and 3) paying (gains?)tax on the shares? Again, if you lend the money to the company, what shares are you referring to?

Good luck with the new company.

[aceparts_com]

OK, I think I've got it. I'll take, say £15,000 from external investors, issue them with 15 shares @ £1000 each.

They will then be entitled to 15% share of Divi. Company will have £15K on asset sheet and in the till?

Thanks!

[aceparts_com]

The other way would be for me to own all the shares, and then sell them to the 'investors' for £15K which will result in me personally having a CGT liability?

I would then loan the company money.

I think it's making sense!

[Eric Mc]

Why would you do that?

What's wrong with issuing the shares directly from the company to the investors?

Of you issued 15 shares of £1,000 each, who would end up with the majority shareholdings?
Would they want Preference Shares rather than Ordinary Shares?

[aceparts_com]

I'm just running all the optiong through my 1 bit brain. What's the difference between preference and ordinary?

[Eric Mc]

Ordinary shares basically allow you one vote for each share you own - votes are useful when it comes to an Annual General Meeting or an Extraordinary General Meeting. They also entitle you to a dividend based on the distributable profits of the company.

Preference shares usually give the holders additional
rights over holders of Ordinary Shares. Often these allow them higher value dividends or extra voting rights.

The numbers of shares that a company can allocate is limited by the terms of the company's Memorandum and Articles of Association. If you want to issue more shares than the company is currently allowed, a Special Resolution has to be passed by the members in General Meeting allowing the Share Capital to be increased. This Special Resolution then has to be filed at Companies House.

Don't forget, those holding more than 50% of the Share Capital of acompany effectively control the business.


>> Edited by Eric Mc on Sunday 23 January 22:05

[aceparts_com]

Thanks for all of that. Much appreciated. I'll donate you a share or two, just as soon as we become listed, on the ftse.