As an example ABC ltd, has assets of $500,000 and liabilities of $500,000, with a turnover of $100,000 and a profit of $10,000, retained earning of negative $20,000.

ABC Ltd was set up with only one share and it is held by the single share holder.

Then ABC Ltd (under the direction of the shareholder) issues 999 more shares.

899 of those shares are given (at no cost) to the original one share holder.

Then the company sells the remaining 100 shares to an investor for $100,000.

This $100,000 is then used to purchase assets necessary for the company to grow.

With this asset in place the company wins a contract that increases its turnover and profit.

Can anybody see anything wrong with this scenario? Both share holders are fully informed of all the facts at all stages.

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Originally Posted by Curlyben

Thank you for taking the time to copy your homework to AMHD.
Please refer to this announcement: Ask Me Help Desk - Announcements in Forum : Homework Help

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Hi, did it sound like home work, it is a real company, (I just changed it to ABC Ltd.) that I am involved in. my concern was does this produce tax problems for the initial share holder, I don't want to set up a shareholder loan to the original shareholder as that is not the deal.