How do we account for a director taking 10% shareholding?

TL writes: A new director and shareholder is going to buy 10% of our company for £10,000. We are also going to invest in a new company being set up by him. My partner and I will become directors and acquire 10% of that company for £3,000. How should the transactions be recorded in our books and what are the consequences regarding capital-gains tax (CGT)?

Answer

If the original shareholders are selling some of their shares then they should receive the proceeds of the sale and the company will only have to update its statutory records to record the share movements. If the money has been received by the company this should be treated as a loan from the director/shareholder and accounted as shareholders´ personal transactions. If the company is selling new shares the money received will represent the increase in the issued share capital of the company and the creation of a share-premium reserve if the shares have been sold above par value. A sale of shares by the original shareholders is liable to CGT. There would be no CGT consequences for the individuals on the issue of new shares if market value was obtained by the company for the new shares and the value of the original shareholders´ holdings, although reduced in number, had not diminished in value. The acquisition of shares in the new company only concerns your existing company if funds have been withdrawn from it to pay for the shares.