Zero called up share capital - acceptable?

[romkyns]

When incorporating, we authorised 100 shares at £1, allocating 50 to each director in our shareholders agreement.

We didn't pay for these shares until after the first financial year was over. We also didn't record any share capital in the accounts.

Would it be correct to record zero "called up share capital not paid" and zero "called up share capital" on our first year's balance sheet?

Do I understand it correctly that the 100 shares were "subscribed", but not actually issued and not called up, until the time when we decided to pay for them and put them onto the books? Or was this a mistake?

 

[Robert Pearce]

It's not correct to show zero share capital in the balance sheet of your company. You have to recognise the shares in the accounts once they have been issued - the timing of this is not related to when you decide to pay for the shares.

Each director subscribed for 50 shares on the incorporation of the company. The Companies Act 2006 requires that this be recorded in the company's register of members. Once it is recorded, the shares are treated as 'issued'.

From day one of the company's existence, you would have had "called up share capital not paid" of £100 and this should have been shown in the balance sheet at the end of the first financial year.

 

[romkyns]

I see - the shares are indeed recorded in the registry.

In the balance sheet, would the unpaid capital be shown as a negative figure, decreasing the total for the upper half? That seems to be the only way for things to balance.

 

[Robert Pearce]

Called up share capital not paid is shown as a debit balance (a positive figure) in the top half of the balance sheet.

It can included in the debtors figure (and classified as other debtors) or it can be shown separately at the top of the balance sheet above the fixed assets figures.

 

[romkyns]

On the Companies House abbreviated form, it is shown separately at the top.

I'm confused as to which figure is supposed to balance this out. There doesn't seem to be anywhere in the top half where I could meaningfully put a negative 100. The bottom half also doesn't seem to have anywhere to add the £100 into:

- Called up share capital (not this one - not paid yet)
- Share premium account (not this one - issued at nominal value)
- Revaluation reserve (not this one - no assets to revalue)
- Other reserve (not this one either?)
- Profit and Loss (not this one - surely this is nothing to do with PnL)

So where would the balancing amount go on the balance sheet?

 

[Robert Pearce]

If I were preparing accounts, I would put £100 in "called up share capital unpaid" in the top half of the balance sheet and £100 in "called up share capital" in the bottom half of the balance sheet. The share capital note in the accounts would then describe the shares as being allotted and issued (but not paid).

The problem with the Companies House template is that it assumes that all amounts posted in the 'called up share capital' box are paid. I haven't come across this issue before but I don't see what choice you have but to put £100 in the 'called up share capital' box as none of the other boxes in the bottom half of the balance sheet are appropriate. The share capital note will be wrong in that it will describe the share capital as paid but the actual situation should be obvious to anyone looking at the balance sheet.

 

[Tom Egerton]

Agree with Robert Pearce.

You must put the £100 both above and below the line. "Called Up Share Capital not paid" should precede the Fixed Assets as a separate line item with the "Called Up Share Capital" obviously below the line.

Whether the Companies House template or proprietary software will cope with this is another matter. At least with software there's a chance that an update will eventually fix the problem but with Companies House there would be little chance (they're still referring to the 2002 and 2005 Reporting Standards!)

If Companies House don't give you the option, just stick the £100 in debtors. I'm still posting PDF accounts to Companies House in the knowledge that at least they'll be in line with the Companies Act.