How to account for directors pumping in more money
Hi guys,
I am doing the accounts of a private limited company.
The company started off with a paid up capital of 10,000.
During the year, the directors of the company who are also shareholders pumped in another
50K. However, no shares where issued. Where can I account for the 50K in the balance sheet?
Thanks for your help!
Cherry Blossom
Don't know what a private limited company is but you need to go to a knowledgeable source for the info, as assumptions are often wrong, determine the nature of the transaction, document and then record.
Find out whether it's a loan or equity transaction. For everyone's protection there should be a signed written document specifically describing the transaction/s (authorized or supported with the entity bylaws) which each party should have as well as be included in the minutes. For example as of now you know what was received but there could still be amounts due from these or additional parties.
With that in hand the recording should be evident.
Classic Corp contribution Q
Oh, this is so fun, I'm reminded of college. I may make an cr or db error.
Subsequent contribution: ("pumped in"?) owners paid in capital (cr)
Shareholders valuation: PLC share values increase to reflect Entity FMV/# of shares (db)
In reality, an FMV valuation will mitigate the above share valuation equation. The question should
remind us of Corporation Accounting & Treasury Stock. Corporations purchasing its stock increases
value of outstanding shareholders.
Cherryblossom's PLC's options:
Increase number of shares or increase value of outstanding shares. I suspect UK Companies Act
limits distribution of shares, ergo, decision to contribute capital without additional shares.
Pat: Private Limited Company (PLC) is UK's term for a "small" (P) private corporation.
"Limited" (L) refers to shareholder's liability, the term oft expressed, "Ltd.", to give notice to
contracting parties the firm's liability is limited either by statute, rule of law or act
of Sovereign (ex.: Treaty or Proclomation). Alternatively, the company is a Private Unlimited
Company (similar to an US General Partnership).
Goldman & Sachs was an Unlimited Company until approximately 2000, converted to an LLC.
UK Companies Act classifies Private and Public Limited Companies in accord with valuation
concepts. Public Limited Companies valuation similar to NASDAQ listing requirement of... $5 million US (?).
Cheers to cherryblossom, second UK member to AB.
Last edited by Helse; 12-22-2009 at 06:14 PM.
Still you need an underlying document to make a proper entry as it is not stated whether: loan or equity; all directors/owners made contributions; contributions are in direct proportion to ownership.
Bank Records As Documentation
I think capital contribution via bank instrument is sufficient to evidence contribution. If
the PLC issues a receipt, acknowledgment or statement the "paper-trail"
requirement (if there is such in UK) is satisfied. My stock broker laments, "If you
deposit $1,000,000 or $100 we give you an identical slip of paper 3" x 6"
similar to an ATM receipt". I've purchased NASDAQ shares with a credit card.
Re: Equity v Loan
Pat, I'm surprised, every accountant learns in graduate school that "pumped in" is
an ancient French term of banking, derived from Medici Banking family's
secret money transfers code forphumperine (def: (Lt.) freely contribute).
I thought this was explained by Tom Hanks in a recent movie, Daaaa Vincents
Code. C'mon. Let's Get Real Here and act professional. Geesh.
The above definition is from, House of Cards Dictionary, 3rd ed. (1793).
Last edited by Helse; 12-22-2009 at 06:36 PM.
Ah yes, those were the days back in Florence when they were pumping so much cash they created double entry accounting to distinguish between their loans and capital.
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