Private Limited Co Share allocation

[Argent]

I have a friend who has recently set up a limited company. His accountant has set them up with share allocation of 50,000 shares each. He is worried about the entries in his accounts regardingthese shares...

The balance sheet shows Called Up equity as £100,000 and the opposite entry in Other Debtors as being £100,000. Yet the notes state that the share capital as being allotted, called up and paid for???

My friend assures he has not paid for any of this share capital..

He is concerned that should the company wind up they would be laible to pay in £100,000.

Argent

[Alpha]

Why on earth has the 'accountant' set up a new private company with 50,000 shares.( I presume from the figures stated that they are £2 shares....also unusual)

The problem as you state is that on any winding up of the company the debtor(s) will be liable to pay for their share capital.

On a striking off motion the Hope the company is going to make a lot more than £100,000 in profits very quickly.


The only way that the shares could be classified as fully paid is if there has been some payment either cash or in kind which would for example be goodwill created from the transfer of an existing sole trader/partnership business.

I would advise your friend to talk this through very carefully with his accountant which may put his mind at rest

[Pebble Communications]

Is it a qualified accountant doing this? anyone can call themselves an 'accountant' even if they have no training, experience or qualifications. Make sure your friend checks this is being dealt with by a real professional - look for ACCA or similar. This needs to be done properly or they could find themselves with big problems.

[Argent]

My friend has stated that they have not paid for these shares in any way, apart form £1,000 for start up, which would suggest that they have paid for 1,000 shares and not 100,000!!!. Is there a way of reducing this shareholding, by cancelling the shares?

[Pebble Communications]

Sorry, how many partners are there? Is the accountant one?

[dcaccounting]

That is quite amusing :D anyway....

You are quite correct in your thinking. Those double entries that you haven given mean that the company has issued £100,000 worth of shares but hasn't as yet received the capital for them... hence the opposite entry being "other debtors"

Should the company now liquidate it would be looking to collect its debts to pay off its creditors... the both of them needing to repay there debts for the shares of £50,000 each. As they have already paid £1,000 each there "limited liability" would be £49,000 each left to find :shock:

Lots of other implications could form there defence but I wont go into that.

Regards

Dean

[winton50]

Actually won't it be the official reciever or an adminstrator who will be chasing the money - Yikes!!!!!