Issuing more shares is another way of introducing funds to your corporate business. This is a good addition to business funds and gives additional strength to the company’s balance sheet. However, you need to consider where the funds are coming from to subscribe for the new shares. If the original owner of the business wishes to subscribe for these shares, then he or she may have to borrow money as discussed above. However, shareholders in this position are often at the limit of funds that they can borrow. So, it may be necessary to have an investor buying those shares. This may result in a loss of either control or influence on how the business is run. Considering this an issue of shares in such circumstances can be a very difficult decision to make.
If you are starting, or have started a business in Bickley, Bromley, Kent and London areas we, at Adiva Accountants in Bickley, can help you in issuing shares to investors. So please do not hesitate to contact us at Adiva Accountants in Bickley for further advice.
If you approach venture capital houses for finance you will also have to issue new shares. The amount of capital they can introduce into the business is an advantage of going to such institutions. The British Private Equity and Venture Capital Association offers useful free publications (www.bvca.co.uk). Due to the considerable size of their investment, you can expect them to want a seat on your Board. They will also make available their business expertise which will strengthen your business. However, this will come with an additional pressure for growth and profits.
Over the years, the government has introduced various tax-efficient schemes for entrepreneurs to invest in growing businesses. The current schemes available are called:
- the Enterprise Investment Scheme (EIS)
- Seed Enterprise Investment Scheme (SEIS) and
- Venture Capital Trusts (VCT)
The EIS scheme offers tax reliefs to investors in higher-risk small companies.
The SEIS scheme is designed to help small, early-stage companies to raise equity finance. This scheme offers a range of tax reliefs to individual investors who purchase new shares in those companies. SEIS scheme recognises the difficulties which very early stage companies face in attracting investment. So, it offers tax relief at a higher rate than that offered by the EIS scheme.
Retained earnings and drawings
The well-being of a business is connected with the cash flow, so attention should be paid to that. If a proprietor would need more liquidity. Then it might be necessary to review the amount of money they are withdrawing from the business for their personal needs. If the personal drawings can be reduced, the additional funds earned by the business can be retained for future use.