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Where Taxpayers and Advisers Meet

Diretors loan conversion to equity

lme143
Posts: 1
Joined: Wed Jan 09, 2019 4:11 pm

Diretors loan conversion to equity

Postby lme143 » Wed Jan 09, 2019 4:22 pm

My client has received equity investment of £250k for a 25% share of their business and the investors have requested that their directors loan be converted to equity as part of this investment. The loan is for £29k. The current share structure is a £1 share for 100% ownership.

I haven't had to reclassify the equity for investment before and convert a directors loan to equity so your advice would be appreciated on the accounting treatment and any tax implications this may have for the business and the current owner.

Thanks

Tom7000
Posts: 68
Joined: Wed Aug 06, 2008 3:30 pm

Re: Diretors loan conversion to equity

Postby Tom7000 » Wed Jan 09, 2019 6:07 pm

You need to know what % they get for the investment and then make sure the share structure is right and the balance goes to a share premium account.

Say they get 10%
You issue them with 10 new £1 shares for £250k and the existing chap has 1 share so he gets another 89shares so then its 90 10
share premium is 249990. Are you doing this under EIS rules so the investors get all the tax breaks?

Be careful you'll get sued if you get this wrong. Ask someone in a big local firm of CAs to help if you are stuck. They will proabably want £5k but might save 75k plus tax for the investor depending who he is


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