Farm Ireland

Sunday 19 November 2017

Save cash by working out equity share capital

Depending on circumstances it may make a major tax difference when it comes to deciding the amount paid for the equity share capital.

In the example, assets of machinery and stock worth €100,000 are transferred into the company when it is formed. You have two options as to how you could bring these assets into the company.

Option A shows that you can increase the base cost of the shares by €100,000. This forms part of the equity of the company and in an ongoing situation cannot be taken out of the company. It will only be a factor if a disposal of the shares occurs. In this case, if you were to take the €100,000 out of the company, you will be taxed at your marginal rate of tax, which will result in €52,000 in income tax.

Option B shows that you can increase the director's loan in the company, ie it now owes you €100,000. You can take this money out of the company with no income tax consequences. In this case, this is the obvious choice.

  • Director's loans may be repaid tax free
  • Tax relief may be available for buying company shares

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