Converting receivables as paid up capital

[Bluemango]

Hi, I've set up a Pte Ltd company with a partner with a paid up capital of $500.00. In our first mth operation we have closed $126k sales with $63k collection. We were being advised to increase our paid up capital to $50k due to some requirements for a new project. My question is, what is the best way for us to `transfer' $50k in the accounts as 50/50 equity for the paid up capital from myself and my partner?

[Strong Eagle]

Hi, I've set up a Pte Ltd company with a partner with a paid up capital of $500.00. In our first mth operation we have closed $126k sales with $63k collection. We were being advised to increase our paid up capital to $50k due to some requirements for a new project. My question is, what is the best way for us to `transfer' $50k in the accounts as 50/50 equity for the paid up capital from myself and my partner?

Only shareholders can contribute to paid up capital by buying more shares. Shares can be purchased with cash, or with assets, tangible or intangible, that have been properly valued, for example, buildings, property, machinery, or intellectual property.

Receivables belong to the company and cannot be used to add to paid up capital. Nor is it legal for a company to loan money, sell shares at reduced price, etc, to any shareholder for them to buy shares in the company. That is to say, while you can make directors loans, you can't make loans for the purposes of buying shares.

Your only recourse is to collect the receivables, then distribute them to the shareholders so that they can purchase more shares.

[Bluemango]

Thank you for the clarity Strong Eagle. Greatly appreciate it!

[Strong Eagle]

One thing I would look at as an alternative to paid up capital is to be able to guarantee some kind of cash account.

My biz partner and I put in $100K each in paid up capital... we knew we would need operating cash... and we went the route of paid up capital so that the firm looked like it had some girth.

But paid up capital means absolutely nothing in terms of the real financial health of the firm. We could have spent all $200,000 on expenses, then borrowed another $100,000 and have a negative net worth, but we would still have paid up capital of $200,000.

The alternative is to loan money to the company. If the people for who you are wanting to work are wanting some kind of evidence that you have sufficient resources to finish the project, then loan the company some money, stuff it in the corporate account and give them a copy of the statement. You can always take it back later and repay yourself.