Conversion of Loan to Share Capital

[SSS100]

I started a company 5 years back nd it did failry well. So, 3 years back started another company as i wanted to separate activities
I took funds from company A and used it as a loan to start company B, which means company B owes company A (loan)
Now, the balance sheet on company B does not look good as a result of the loan in liabilities.

I want to convert the loan into Share Capital on company B's books. in that way the company balance sheet will be better.
How do i deal with the loan in company A? Can i write it off or whats the appropriate way

Regards

[Dave A]

How do i deal with the loan in company A? Can i write it off

Absolutely not

Company A will be the owner of those shares in Company B, which one hopes is an asset.
The loan value converted to shares would be shown as the acquisition price of those shares.

[SSS100]

Hi Dave,
My case has just been made worse by a call from an company secretarial. The matter is now a bit complex and i'm even very much lost

Earlier this year i started a Holdings company "C", which i then used as a shareholder in both company A & company B (the reason was that i was trying to grow a situation where only the Holdings company own shares in other entities i will start, and not one entity owning shares in another)

And as things stands now, company A has no ownership in company B, the Holding company C, owns shares in both A & B (with myself being the only shareholder of C)

How do we deal with this matter? the company secretareal says i can not convert the loan on B into shareholding as A is not shareholder in B

Any idea? Please
Botton line is both companies, A & B have one shareholder, C and C has one shareholder, myself

[Dave A]

What you're doing is paying debt with shares (instead of money). Company B is going to have to issue/sell shares to do this regardless of the current shareholding.

I'm trying not to assume anything, but I can see scenarios where there could be some risk here.

I suggest you go over the situation very carefully with an accountant. The specifics that are best not shared on a public forum probably matter when determining your best course forward.

[SSS100]

Noted Dave, as long as there will be a solution
Iniaital idea was changed as holding company registered

[CLIVE-TRIANGLE]

Hi Dave,
Earlier this year i started a Holdings company "C", which i then used as a shareholder in both company A & company B (the reason was that i was trying to grow a situation where only the Holdings company own shares in other entities i will start, and not one entity owning shares in another)

And as things stands now, company A has no ownership in company B, the Holding company C, owns shares in both A & B (with myself being the only shareholder of C)

How do we deal with this matter? the company secretareal says i can not convert the loan on B into shareholding as A is not shareholder in B

Any idea? Please
Botton line is both companies, A & B have one shareholder, C and C has one shareholder, myself

If company B has unissued shares, then there are a myriad of possibilities of which your original intention is but one. There is no reason why your suggestion cannot work. If on the other hand issued shares = authorised shares, a wee bit of work is required.

Having said that, I assume these are companies with par value shares? If so, you would do well to convert them to ordinary shares with no par value (as envisaged in the new act). This is not totally necessary, just nicer, because it gets rid of a share premium that almost certainly arise from the transaction. It can also be done after the transaction, with the same result. Assuming the year end is February, there is plenty time to consider options and select what works best.

I too am a company secretary and the one you consulted has little imagination, or simply has no real knowledge of the Act. For the life of me I cannot even guess why he gave the advise that he did.

[CLIVE-TRIANGLE]

Actually SSS100, reading of your experience really angers me!

There is only ONE thing you cannot do in your scenario, and that is offer shares to the general public by way of a public offering! You can do just about anything else that comes to mind!

The part that angers me is that you have taken the trouble to seek professional advise, and received an amateur service. If you need assistance in this, PM me.

[SSS100]

Hi Clive,

Thanks for the positve input, I was really getting frustrated with regard to this matter
The company has authorised share capital of 1000 shares, and only 100 issued and 900 unissued. And i do not want to issue to the public at all, i want it to remain a private entity

Contact details please.

[CLIVE-TRIANGLE]

I have pm'd you.