company investment/accounting question

[dcw@pr]

If I invest £10k into a company for 10% equity, how would that money be entered into the books? Loan, sale etc... Presumably not a sale since you don't pay tax on it?

[Eric Mc]

I am assumimg that the business is a limited company (i.e. not a sole tradership or a partnership).

If you are buying shares in a limited company, the shares will have a face value. Say you buy 1,000 shares of £1 each. You have bought £1,000 worth of shares. If you pay £10,000 for those shares, the excess of £9,000 is called a "Premium" and a separate account is opened in the records of the company called a Share Premium Account and that is where the excess of £9,000 is posted. It remains there indefinitely.

Alternatively, you could treat the £9,000 as a loan to the comapny and have it posted to a Loan Account of some sort in the company Balance Sheet.

If treating the extra amount as a loan, the legal paperwork behind the transaction would have to be clear that the extra amount was a genuine loan to the company and not the amount paid for shares. There should also be some sort of terms and conditions drawn up for the repayment of the loan.

Are you a director of the company?

If not, do you intend to become a director?