Capital Subaccounts & Share capital

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Not sure if this is a question or a request… :wink:

One of my businesses in Manager (a registered limited Company) presently has 6 shareholders (which in the near future will be increased to 12 individual shareholders)

I have set up Capital Accounts for each member/shareholder and presently have the following subaccounts:
“Shareholders’ Loan”, “Shareholders’ Drawings”, “Shareholders’ Retained fees” (=for example consultancy work invoiced to the company but not paid) and “Dividend”. This means that the net Capital Account total for each shareholder will be the current debt to/from this member (with a very easy way to drill down and review what this balance consists off)

I have also set up a separate Equity Account for “Share Capital”.

So far so good and all the above seems to work well… And I assume this is the default way to use these accounts (when business is a “company”)?

Initially I was exploring a way for Manager to also keep track of each individual shareholders shares and share capital contributed so that I do not need to maintain a separate “share register” outside of Manager.

I was first considering adding “Share Capital” as a new Capital subaccount, but I cannot find a way to get this subaccount to be listed as a separate line item in the Balance Sheet (which obviously is a regulatory requirement for Share Capital).

Next I tried to see if I could find a way of adding “subaccounts” to my new “Share Capital” account. In theory I can do this by changing my present “Share Capital” account to a “Total” (placed under Equity) and then add a subaccount thereunder for each shareholder. The problem with this method is that I then get a very messy Balance Sheet as all these subaccounts will be printed (of course I only want the “Total” on my Balance Sheet report).

I realize that what I try to achieve may go a fair bit beyond what is presently supported in Manager (or indeed in most accounting software), but I want to check if anyone has any thoughts on this and possibly a solution…

If not, would such a “share register” account be something that can be added to the future Manager “Road Map”…? (Though it is not traditionally anything included in accounting software I believe this would be a nice “add on”…)

For this to be really useful, I guess the best would be a new structure similar to the existing “Capital Account” function. What we really like to keep track of is the “number of shares” for each member while “share capital” primarily is a “Total”. Each Share issuance round typically has its unique “price/share” so “share capital” per member would give the wrong information. Total Share capital and number/percentage of share per member is what’s interesting as a new “Report” (with “drill down” ability to see when a member acquired his shares and for how much).

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Capital accounts are not suitable for maintaining a share register but may be used to record shareholder loan transactions and should be classified as Assets if they are debit balances and as Liabilities if they are credit balances.

You can set up unlimited Groups, sub-groups and sub-accounts under Equity that may be used as a share register although this practice is unconventional and your Balance Sheet presentation would be cluttered.

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I think that @lubos and @Brucanna will be the best people to help you with this questio.

Firstly as you are a limited company, you should not be using Capital Accounts. Lubos said that you could bend it to that use, but strictly speaking for accounting purposes Capital Accounts is not used for Limited Companies.

See the post here - regarding that discussion - Directors Loan Account

There is another topic which I posted in, but I can’t find it right now.

My recommendation (despite what Lubos said that Capital Accounts can be bent to that use) is to rather follow recommended accounting procedures. This way any accountant looking at your accounts understands what you have done and its always better to start off how you mean to carry on as it were.

So I would recommend that you remove Capital Accounts for your limited company, although I will admit that it does make it easier to keep track of dividends, loans etc for each shareholder.

  1. To create share capital, create COA called Share Capital in Equity. Create Shareholders Loan Account in Assets or Liabiliities (I prefer Assets as I will be borrowing from the company most of the time, but if your shareholders are lending money most of the time, then I would put it in Liabilities). Do a journal entry and debit Shareholders Loan Account and Credit Share Capital.

  2. Add the employee and Payroll Tabs and setup each Shareholder as an employee and create an expense account called Salary. This is if your “Shareholder Drawings” are salary payments to the shareholder for their employment. When you create payslips it will allocate the amount to salary and employee clearing account and payroll Liabilities (which are created when you add the payslips and employee tabs. When you do a bank spend you then allocate to the employee clearing account.

  3. Create Dividends in Liabilities and do a journal entry and debit Retained Earnings and Credit Dividends and then do bank spend and debit Dividends if you wish to pay out immediately. Otherwise do journal entry and Debit Dividends and Credit Shareholders Loan Account.

  4. Create Consultancy Work expense account and do journal entry - debit Consultancy Work Expense Account and credit Shareholders Loan Account.

This is I believe (and lubos and brucanna will correct me if I am wrong) is the correct way to do these transactions in a limited company.

Having said that, I acknowledge that this does not solve your main question which is how to track individual share capital for each shareholder and in fact this method would also make it harder to track dividends etc per shareholder. Lubos mentioned that he might be dong some work on shareholder loans accounts and presumably this issue with Share Capital. Perhaps they can explain how to track the transactions per shareholder using this accounting procedure which is the correct procedure for a ltd company as Capital Accounts is meant to be used by companies that are not incorporated as a ltd company.

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What @dalacor outlined is essentially right, with a corporation the Equity section should only contain Issued Capital and Retained Earnings. You must remember that the Corporation and Shareholders are separate legal entities, therefore any money owing to shareholders (regardless of the reason) is a liability of the Corporation and is “NOT” part of the Corporation Capital structure. To blur non-equity items (loans)as equity items will have your corporation equity section in a complete mess.

Theses should be immediately deleted and re-setup up under BS Liabilities to start with. To achieve individual shareholder totals you could create a group for each shareholder containing the accounts listed above. Why you need so many differing accounts as normally just one loan account per shareholder would suffice. I understand that your proposed number of accounts may look messy but until Manager has the Loan tab your only other option is to have one account per shareholder, which would be my recommendation

As explained above, this is a very irregular way contradicts accounting standards and corporation law.

Setting up the Share Capital account is one way, but if you want to track individual shareholders holding, then this is where you should utilise the Capital Accounts tab by creating each shareholder as a sub-account. Actually, this is the exact the function for which the Capital Accounts was setup for. The only other thing you need to do, is change the name of the BS Capital Accounts to either Share Capital or Issued Shares by going to Settings - Chart of Accounts. While these sub-accounts can mimic a “share register” I don’t think they are an acceptable legal substitute. If your corporation didn’t come with an appropriate share register form, then one can be easily created on a spreadsheet, as you need to keep details of name, address and date of issue, number issued, issued price each time an issue occurs and date sold etc

Manager can easily support want you want to achieve and is being used by more complex corporations then yours, but you need to use the features correctly. It’s entirely up to you as to the level of simplicity or complexity.

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Can you clarify this as I am not following. How do you create a group. You can create a shareholder Loan liability account or you can create shareholder A Loan Account and shareholder B Loan account in COA. I do not follow how you create groups?

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Or

Under Settings - COA - BS - create new group - Shareholders - categorise as Liabilities
Then create new account - Shareholder A - categorise as Liabilities - Shareholders

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Oh I see, you are creating multiple accounts and then putting them into each category. This would be very messy with 24 shareholders though!

I now finally understand how Capital Accounts Work and why you suggested using that for Capital Shares - It an equity account which is what Capital Shares is. However Dividends and Loan Accounts are not equity (for ltd companies) thats why you don’t use Capital Accounts for Ltd companies. Took me a while to work this one out as I only finally understood this when I saw you suggest using Capital Accounts for Capital Shares because they are both equity accounts!

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That Bookkeeping Consultancy is getting closer

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Exactly, hence the recommendation of one account per shareholder (2nd example) until such times that the Loan Account tab becomes available

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No I would need to spend too much money on booze. This level of accounting gives me a headache!

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Ooops… I notice on some of the feedback that I forgot to mention that I have “renamed” “Capital Account” (the “main” account) to “Shareholders Loan” and moved it to Liabilities rather than Equity (in the Balance Sheet). I foresee that for now the net balance will be a liability… In Equity I only have Share Capital and Retained Earnings…

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@Brucanna

I am facing the same problem. Today I have created the Partners ( Group A/c under Liabilities ) and added partners to this account. Now the equity total comprises of these partners total figures ( Contribution in the company ). Please let me know the procedure how to obtain bifurcated figures. ( The total should be equal to the Equity figure ). Thanks in Advance.

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From your description I am unsure what your problem is. Can you expand and include details.
They don’t have to be the exact details but they should reflect what you are trying to portray.
Thanks

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We are partners in the firm and have contributed equity. At this moment the equity account shows only one single figure which reflects the total combined equity of all the four partners. If we want to see the individual capital of each partner we have to manually segregate the same from the equity or see it from the capital accounts tab. I would like to see the equity of each partner separately on balance sheet . The partners keep contributing , withdrawing and are paid salary through out the year. The single equity figure reflected is correct but I would like to see the equity of each partner separately. This is my first year and now I want to prepare balance sheet for the whole year.
Waiting for your reply.

Thanks & Regards

Nitin Raheja

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Have you used the Report - Capital Accounts Summary - to see the analysis

Under Setting - Capital Subaccounts - you can setup / rename any accounts you require

Then these will be included in the Report

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Putting them individual on the balance sheet would be messy