Share Transfer from Capital Accounts

Hi Forum Members,

The company has 3 Directors and 3 of them are recorded in Capital accounts separately, with the amount of paid-up capital company received from each of them.

Now, one director has sold his shares of the company to the other 2 Directors.

How should this be accounted in Manager?

Thanks for your help.

Presumably the 3 directors paid money to the company and received their shares when the company was started.

As the sale & purchase of the shares between the director does not affect the companies bank accounts, and indeed has nothing to do with the company’s operations, I think a simple journal transfer will suffice to record the transaction.

Debit the Director Capital Account with the sale amount (nominal value, not whatever was paid)

Credit the Directors’ Capital accounts with 1/2 the sale amount or whatever proportion each bought

@Joe91 is on the right track but to clarify a little. The sale of the shares is a private transaction between the directors in that the payment is between themselves and not within the company.

So if the originally issued shares to each Director were 10 for $10.00 then the selling Director’s shares would be redistributed by adding $5.00 to the other Directors accounts, assuming 50/50. As the company only ever received $30.00 for the shares, the paid up share capital remains at that value.

Dear @vozel, you have just to do a journal entry between the two accounts.