Investments from external (non-director) shareholders - which category?

Accounting
1

Hi, how do I tag an investment (not a loan) from someone who is a minority shareholder in the business (but not a director), it came from their personal bank account to my business. There doesn’t seem like there is an option. I also have investments coming from another businesses bank account to my business bank account.

Thanks!

2

It depends on what return you have offered them for investing in your company.
Sounds like you are not offering shares in the company, so if they are just lending the company money I would create a separate Directors loan account for the minor shareholder say nominal code 1202
and for the other investor an Investors loan account maybe nominal 1210 or just use the existing Loans account code 2300 and tag their payments to those loan accounts.

3

Hi Freda,

Thanks for the reply, yes they will be getting shares, they are not loans - do your stated options still apply?

Thanks,

Adam

4

Yes I would create 2 new Director loan accounts with their names on them
and tag the bank entries to the respective loan accounts.
You should really ask your accountant about this

5

Hi Freda,

Thanks I will consult my accountant. If it goes down under ‘loan’ then that’s surely something that needs owing back to them - when really the return is shares in the company. Maybe there should be another category made in QuickFile?

Cheers

6

Yes, your accountant should be able to advise you on that, as you are really selling shares in the company so there’s a lot more involved.
Take a look at this case on accountantweb

7

Thanks, the shares were ‘bought’ as part of starting up the company (not sold once the company was already going), does that make a difference?

8

It sounds like you are getting money from investors without them getting anything in return, no security on their investment not even their money back as you said it would not be a loan, and you are not selling them shares, if that’s the case treat the money invested as if you were putting it into your business yourself so tag it to your directors loan account.

Normally investors invest their money in company shares getting their return via dividends from profits or a mix of dividends and share buy back, plus a say in how the profits are used as the company could use all the profits in other ways leaving nothing for dividends.
You really need an accountants advise.
In the mean time you could leave the investments untagged in Quickfile
Here is a related article from the UKbusinessForums

9

Hi Freda,

Thanks but don’t worry, it is a standard share investment! They invest money and get shares in return (plus dividends on profits).

I’ve left them untagged as I don’t feel there is a suitable category in QuickFile.

Thanks

10

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