Explain the purchase of shares from a director
This article describes how to explain the purchase of shares in a company by a director.
Money explained as share capital introduced will be added to the director's capital account.
If you've lent money to the business rather than purchased shares, read how to explain transactions using the director’s loan account.
Please note that you need to have level 6 access or above to your FreeAgent account to explain bank transactions.
Navigate to the 'Banking' tab at the top of the screen and select 'Bank Accounts' from the drop-down menu.
Choose the relevant bank account from the list.
Select the transaction that you would like to explain.
If the shares were bought from the company for par value, you can explain the transaction as 'Share Capital Introduced'. If the shares were bought for more than their par value, you'll need to split the transaction.
Shares bought for par value
Select ‘Money Received from User’ from the transaction ‘Type’ drop-down menu. Please note that this option will only be available for business bank accounts. You won’t see this option if the bank account has been marked as personal or for a user who has been allocated the role of ‘Accountant’.
Select the relevant director from the ‘Received from’ drop-down menu and select ‘Share Capital Introduced’ from the 'Category' drop-down menu.
Select ‘Explain transaction’ to complete the process.
If you have more than one transaction that you need to explain as a purchase of shares from the same director, tick the checkboxes to the left of the relevant transactions and select the relevant options on the right-hand side.
Select ‘Money Received from User’ from the ‘Type’ drop-down menu, the relevant user from the ‘Received from’ drop-down menu and the appropriate category from the ‘Category’ drop-down menu. Remember to include an appropriate description for the selected transactions. If you leave the ‘description’ field blank then the transactions will be given the original descriptions that came through for them via the bank feed import or bank statement upload.
Select ‘Explain [X] transactions’ to explain all the selected transactions in the same way. Read more on explaining multiple transactions at once.
Shares bought for more than par value
If the shares were bought from the company for more than their par value, you'll need to split the transaction between the par value and the premium value.
Select 'Adjustments' to the right of the transaction and choose 'Split transaction' from the drop-down menu.
Select ‘Money Received from User’ as the 'Type', enter the par value in the 'Value' field, choose the director from the 'Received from' drop-down menu and choose ‘Share Capital Introduced’ as the 'Reason'.
Select 'Save and add another' at the bottom of the screen.
Next, select 'Other Money In' as the 'Type', enter the premium value of the shares in the 'Value' field and choose ‘Share Premium’ as the transaction ‘Category’.
Select 'Save and finish' at the bottom of the screen to complete the process.
The transaction will then be split between the par value and premium value.