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Sale of shares - accounting

Naveen (Accountant) (47 Points)

08 August 2011

Hi,

I work in a Pvt Ltd Company. the following transaction has happened in my Company.

1. Company had 8 Share Holders.

2. A Venture Capital Firm has invested in the Company.

3. Existing Share Holders sold some of their shares to Venture Capital Firm

4. Also company sold some Preferential Shares to Venture Capital Firm

Please help in passing entries in Books of Accounts,

1. What entry need to passed for issue of Preferential Shares

2. What entries needs to passed for sale of Equity shares by individual Share holders

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1 Replies

Vignesh Killur (Articled Assistant) (1671 Points)
Replied 08 August 2011

If the Company has issued fresh Preference Shares to the Venture Capital Firm the VC Firm brings in funds,then the following JE needs to be passed

1. Bank A/c Dr

To Venture Capital Firm A/c

2. Venture Capital Firm A/c Dr.

To Securities Premium

To Preference Share Capital A/c

If the Shares are issued at Face Value, then there is no need to Credit Securities Premium A/c.

According to my opinion, there is no need to pass any Journal Entry for the sale of existing shares by the individual shareholders to the VC Firm because the transaction does not concern the company. No fresh Capital is introduced to the Company and there is no change in the Share Capital of the Company. But the relevant Registers need to be updated and fresh shares are to be issued in the name of the VC Firm after they duely execute the Share tranfer Deed.

Regards,

Viggi