Public Company

Hi, no problem

An organisation wishes to be incorporated as a public company (this is, in itself, an unusual occurrence!) then it must go through a process of registration with the Registrar of Companies

As well as a number of forms that need to be completed and filed, the organisation must also prepare a set of Articles (the company’s constitution)

To be incorporated as a public company, the organisation must show that it has issued not less than £50,000 nominal value of share capital. In addition, it the directors of this soon to be new company are adventurous, they may be able to persuade these original investors to pay more than the face value (nominal value) of the shares and thus we can say that the shares are to be issued at a premium

Let’s say that the directors fix the issue price at £1,30 and that they have interested potential investors looking to buy £60,000 nominal value of shares … but these investors don’t want to pay the full amount all in one go just yet

The full amount receivable, were the shares to be issued at full value plus premium would be 60,000 * £1.30 = £78,000

But, to satisfy the legal requirements, it’s only necessary to have ‘not less than 25% credited as paid up + the whole of any share premium’

In our hypothetical example, that would be 60,000 shares * 25 pence = £15,000 + 60,000 shares + the whole of the 30 pence per share premium = £18,000

Thus the company can issue 60,000 shares not less than 25% credited as paid up + the whole of any share premium ie a total of £33,000 ….. or euro equivalent

Having just written about the euro equivalent I really do not know whether that still applies given the UK’s withdrawal from the European Community!

In our example, if the shares were to have been issued at par value (£1 each) with no premium and the minimum number of shares issued, that would have been 50,000 shares of £1 each issued and credited as 25% paid = £12,500 with no premium

Is that clear for you now?

AHA! When Margaret Thatcher’s Government was busy privatising Britain’s Nationalised Industries, it came the turn of the National Telephone System to be offered to the public and taken out of Government hands.

The terms of issue of the British Telecom (now BT) £1 shares were:

50p payable on application
40p payable on first call, one year later and
40p payable on second call, 2 years later

Now the issue price for a £1 share with a 30p premium, in order to satisfy the law, should be 55p on application (25p share capital + 30p premium) and the double entry would be:

Dr Cash 55p
Cr Share Capital 25P
Cr Share Premium 30p

BUT there wasn’t 55p cash received, so that entry doesn’t work.

But here comes the cunning plan! The share invitation to apply for the shares was 8x over-subscribed so there had to be a lottery to decide who was going to be successful and those lucky people were notified of their successful application by post. In that postal notification arrived the reminder of the 2 remaining amounts to be paid so NOW we have the situation where double entry could be:

Dr Cash 50p
Dr RECEIVABLES 80p
Cr Share Capital £1
Cr Share Premium 30p

Is that better?