UK Where do initial limited company funds come from

[Karl]

Hi

I'm hoping someone can clarify a point for me that I can't work out.

I'm about to set a Limited Company up and I'm in what I think is a chicken and egg situation.

I need to pay for the setup of the company - should this come from my personal funds and if it does, is it a loan to the business? or should it come from the Limited Company via going into debt with the bank? If so, I can't set the bank account up before I've registered the company!

I'm sure there is a simple explanation for this

Thanks
Karl

 

[Tyson]

It should come from your personal funds and you can count it as a capital injection. You can think of it as the money you are paying to acquire ownership of the new company.

 

[Karl]

Thanks.

So this would be a case of investing as capital by buying shares? Do I specify the amount and value of the shares when I form the company?
Thanks
Karl

 

[Tyson]

You will probably be asked to specify the amount of shares when you form the company. If you are asked to set a par value, set it to some really low number.

Let's say you spend $1000 setting the company up, filing registration documents, etc. Then maybe issue 1,000,000 shares and set the par value to 0.001. Now the $1,000 you injected from your personal funds buys you 100% ownership of the company.

I'm just making guesses here though. It would be best to ask someone who knows more about how the whole system works over in the UK. Maybe a local accountant.

 

[TDRTax]

The cash injection is credited to your director's loan account (DLA). This sits on the balance sheet and is available to draw down on (when the company can afford it) tax free until you withdraw your initial investment. Keep it separate from share capital, which will need planning to extract if the company increases in value and so increases the share value, since then you'll give rise to a capital gains tax charge.