What are the possible ways to account for Investment made by investor without issuing shares?

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samnew12u
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What are the possible ways to account for Investment made by investor without issuing shares?

Post by samnew12u »

A private limited company in Hong Kong with 2 shareholders has a new investor who is going to invest in the company. The company does not want to allocate shares at the moment due to some banking reasons but would be sharing the profit with the investor if the company makes any profit. After a year the company would allocate shares of the subsidiary company once it's been set up to that investor.

One of the options, I was thinking of was to allocate the fund from the investor as a loan and after a year we could convert that loan into share capital. (Is this option feasible?) Apart from this method, any other method we could try?

For your information: According to section 170 of the new Company Ordinance in Hong Kong, a company may increase its share capital without issuing new shares.
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Marek Muc
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Re: What are the possible ways to account for Investment made by investor without issuing shares?

Post by Marek Muc »

accounting treatment may be different from legal treatment, and a 'loan' can be in fact equity, see here:

https://ifrscommunity.com/knowledge-bas ... vs-equity/
JRSB
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Re: What are the possible ways to account for Investment made by investor without issuing shares?

Post by JRSB »

Interesting question and yes I agree with Marek that it's one of those examples of debt but with characteristics of equity eg payment only out of profits, especially if pro rata with equity holders and not in preference. When you look at some of the complex examples of unusual debt instruments it's amazing how companies get themselves involved with these things but I suppose it's normally guided by tax law or corporate law in some way.
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