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I have just opened my first LTD company in the UK, and I am trying to understand the way one goes about it.

Being a self taught person I have been trying to understand how it works by reading .GOV website. I am trying to avoid using the services of an accountant, thus I am trying to get my head around this.

Details:

  • The company was incorporated with 100 shares worth £1 each.
  • I (the Director) am the sole shareholder.
  • I am also the only employee.
  • The company does not have a secretary.
  • I have opened a Countingup account (bank) in the name of the business.

Questions:

  1. Does the LTD currently have £100 pounds worth of assets? If so, do I have to transfer theses £100 pounds into the LTD's account?

  2. Can I use these £100 to buy services, materials etc. for my business?

Thank you very much for your time and consideration. If you can recommend me further reading on the subject I would be more than happy, as I find it pretty amazing how much mystification appears to be in the process.

  • That sounds like a not very personal finance question... – Henning Makholm Oct 24 '18 at 19:42
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    Hi, I am new around here. I have seen other people posting this sort of questions on this StackExchange. Please let me know if there is a specific one I could post in. – Vlad Oct 24 '18 at 19:46
  • It's a good question, would like to know the answer myself. Any accountant should be able to answer, I hope. – marktristan Oct 25 '18 at 9:01
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This answer is set in an Australian context.

A new company has nothing to sell except its shares. In this context, shares are something like a commodity. The shares are ‘created’ or ‘manufactured’ by the directors.

When the shares are issued, the buyer of the shares pays the company some money and receives the shares in exchange.

Once the exchange is complete, the shareholder is free to deal with the shares, subject to relevant agreements and laws.

Likewise, the company is free to deal with the money, also subject to relevant agreements and laws.

So to answer your questions:

  1. Yes, the proceeds from the sale of the shares counts as the company's assets. The new shareholders should pay the company the agreed value of the shares. Sometimes, people set up companies without actually transferring any cash across. This might happen with so-called $2 companies, for example (two $1 shares issued). In that case, the shareholders owe the company whatever they should have paid for the shares - so instead of holding cash, the company has loans of equivalent value.

  2. Yes, the company is free to use the proceeds from the sale of the shares to pay for business expenses. Unless money is gifted or loaned to the company, the company has literally no other money to spend on business expenses.

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    I believe this is how it works in England and Wales too. The OP should note that they are free to loan the company as much cash as they care to in order to pay for business expenses. (Doing this as a loan rather than a gift means that if the company does go bust, they will be entitled to at least some of the money the administrator manages to squeeze out of the assets.) – Martin Bonner Oct 25 '18 at 13:43
  • In Denmark it is illegal to set up a limited company without paying in a certain fraction of the share capital as cash; paying it all with IOUs will not do. I have the vague impression this is an EU rule; if so, the second half of part 1 here would not be valid in the UK. – Henning Makholm Oct 25 '18 at 15:03
  • Interesting point there Henning. But where would these be kept in Denmark ? Would it be on the companies account or the account of the director? – Vlad Oct 29 '18 at 14:26

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