Setting up limited company- share capital v/s loan

[jayintheuk]

Dear Forum members,
Three of us have set up a limited company between us, all three being directors in the company. the initial share capital was 100£, each share valued as £1. Subsequently, during the running of business (we have got into property -BTL), we put our own money in buying the property and refusbishing it. (the total investment is to the tune of £200000. My question is:

is the money invested by the share holders a loan to the company or is it the share capital?

 

[Scalloway]

is the money invested by the share holders a loan to the company or is it the share capital?

If you haven't increased the company share capital at Companies House I would say it is a loan.

If you have not already done so I would get a solicitor to draw up a loan agreement and a shareholders agreement. If you don't have the ground rules set up now you could come to grief if one of the shareholders wants their money back.

 

[WaveJumper]

Just to clarify the three of you purchased and renovated a property with your own money as private individuals outside of the ltd company

 

[jayintheuk]

Just to clarify the three of you purchased and renovated a property with your own money as private individuals outside of the ltd company

No, the property was bought through limited company. The property is in company’s name.

 

[jayintheuk]

Dear Forum members,
Three of us have set up a limited company between us, all three being directors in the company. the initial share capital was 100£, each share valued as £1. Subsequently, during the running of business (we have got into property -BTL), we put our own money in buying the property and refusbishing it. (the total investment is to the tune of £200000. My question is:

is the money invested by the share holders a loan to the company or is it the share capital?

Thanks. That’s my worry. I am the majority share holder. One shareholder is causing problems and we are thinking of getting rid of him. However, in that situation he will simply claim that his investment is a loan to the company and will ask full amount back; whereas the value of the business assets at the moment unfortunately is much less than our original investment. What should I do?

 

[Chris Parkman]

I think that you, and the other shareholder who is not causing an issue, need to take some legal advice. From first view the monies "invested" appear to be a loan, otherwise the share capital would have increased. Also unless something else has been agreed and set out in writing directors loans, which is what this appears to be, are repayable on demand.

 

[jayintheuk]

I think that you, and the other shareholder who is not causing an issue, need to take some legal advice. From first view the monies "invested" appear to be a loan, otherwise the share capital would have increased. Also unless something else has been agreed and set out in writing directors loans, which is what this appears to be, are repayable on demand.

Thanks Chris. I agree. And this guy (lets call him X) has mentioned that the money he is putting in is a loan to the company, so he knows about the way things work.

Can I not increase the share capital now by amending the company documents with Companies House? Will it require his consent? Alternatively, can i not just issue more shares to match with the investment done ( e.g. make a total of 200000 shares to match with the investmant of £200000)? that way the money put in will not remain as a loan, i think. what do you say?

 

[Chris Parkman]

I think the issue is going to be that the shares were not increased at the time, and the starting point will be that it was a loan. Therefore without his consent you may struggle to argue that they were for shares as opposed to a loan.

Have you checked your emails to see if there is anything in writing as to what everyone's intentions were at the time? I think that this is going to be key and might be your best bet. Depending on what you have in writing, that may strengthen your position.

I hope that that helps?

 

[Scalloway]

Can I not increase the share capital now by amending the company documents with Companies House? Will it require his consent? Alternatively, can i not just issue more shares to match with the investment done ( e.g. make a total of 200000 shares to match with the investmant of £200000)? that way the money put in will not remain as a loan, i think. what do you say?

I say it sounds very dodgy, altering the facts to suit your agenda.

 

[jayintheuk]

I say it sounds very dodgy, altering the facts to suit your agenda.

I agree this would not be a right thing to do and i wouldn't do it.

 

[NickGrogan]

I agree this would not be a right thing to do and i wouldn't do it.

So why did you suggest it then?

 

[jayintheuk]

So why did you suggest it then?

Sorry, it was just a random thought. I do have high morals and wouldn't do anything that is as per law and morally wrong.

 

[Spreadsheet Accountant]

Offer x a repayment schedule with interest? If agreed then documented and signed.
Depends on why s/he wants out of course.

Anthony

 

[cjd]

You say that you are the majority shareholder; what % do each of you have?

 

[Spreadsheet Accountant]

"is the money invested by the share holders a loan to the company or is it the share capital?"

This
"money invested by the share holders" indicates you want it to be shares, but this:
"we put our own money in" indicates there was no paperwork and no further shares at all.

It's loan.

Which is nice because you can take it out without any tax impact.
You can also receive interest on it usually.

However, this:
"I am the majority share holder."
conflicts with this:
"all three being directors in the company. the initial share capital was 100£, each share valued as £1"
because that suggests one third each and no one has a majority, not that that majority (say two acting together) would allow one to "kick out" the minority.

You could capitalise the loans, if agreed, but better to negotiate and settle.
How to settle is another thread I think, if and when agreement is reached. (BTL Mortgage?)

Anthony