UNIT 3: Equity and Business Set up

2 different kinds of funds to set up a business: -Own generated funds (money given by shareholders, gains generated by the company and left there “Reserves”, etc.) -External funds (bank loans, etc.) 2 groups of financial accounts: -Group 1: “BASIC FINANCING” – Long Term (with both “own generated” and “external funds”) -Group 5: “FINANCIAL ACCOUNTS” – Short Term (with both “own generated” and “external funds”) 1. FUNDS

2. BUSINESS LEGAL STATUS 3 different legal status for businesses: Natural Person2.1. Sole Trader Legal Person 2.2. LLC (Limited Liability Company) 2.3. Corporation Natural Person – Legal Person -Natural person (Sole Traders) – UNLIMITED LIABILITY Sole traders compromise their own equity before the business payable debts. They are personally liable for the debts of the company. -Legal Person (LLC and Corporations) – LIMITED LIABILITY The partners of a LLC or a Corporation don’t compromise their own equity.

2.1. Sole Traders – Set up requirements 1.No need of issuing any minimum capital 2.Unlimited liability 3.Personal Income Tax 2.2. LLC Limited Liability Companies – Set up requirements 1.Minimum issued capital: 3.005’07 € 2.Minimum disbursed capital at set up: 100% of issued capital 3.Limited liability 4.Corporate Income Tax 2.2. Corporations – Set up requirements 1.Minimum issued capital: ’22 € 2.Minimum disbursed capital at set up: 25% of issued capital 3.Limited liability 4.Corporate Income Tax

3. LIMITED LIABILITY COMPANY (LLC) SET UP - JOURNALS 3.1. Issue, Subscription and Disbursement A LLC has been set up with 200 equity holdings 20€ face value. Expenses (VAT not included): 300€ XXX 194 Disbursed Goods (Banks, Buildings, Machinery, etc) Issued Capital pending registration Issued capital pending registration – LIABILITY (It’s not Equity yet: not until the public deed is filed)

3.3. Public deed filed at the Business Registry 3.2. Expenses (notary public, consultants, Business Registry, etc) _ Independent professional services Input VAT (21% x 300) Taxation authorities withholding tax Other payables Issued capital pending registration Share Capital Share Capital – EQUITY

4. CORPORATIONS SET UP - JOURNALS 4.1. Issue - Paper A Corporation has been set up by issuing shares of 100 € face value. The shares have been totally subscribed ( € monetary, € non-monetary contributions) and disbursement has been made by the minimum required (½ by cash, ½ by land and natural resources). Expenses (VAT not included): 300 € 194. Issued capital pending registration – LIABILITY (it’s not Equity yet: not until the public deed is filed) 190. Shares Issued – MINUS LIABILITY Shares issued Issued Capital pending registration

Uncalled capital pending registration Uncalled non-monetary contributions, capital pending registration Shares issued Subscription (100%) – Not called up People 1034 and 1044 – MINUS LIABILITY (just as 190) (Reclassified) Cash, euros (1/2 25% ) Land and resources (1/2 25% ) Uncalled capital pending registration Uncalled non-monetary contributions, capital pending registration Minimum required Disbursement (25%) - Goods 570 and 210 – ASSETS

4.5. Public deed filed at the Business Registry 4.4. Expenses (notary public, consultants, Business Registry, etc) _ Independent professional services Input VAT (21% x 300) Taxation authorities withholding tax Other payables Issued capital pending registration Share Capital Share Capital – EQUITY Uncalled capital – MINUS EQUITY Uncalled non-monetary contributions, cap – MINUS EQUITY Uncalled cap. Uncalled non-monetary contributions, cap. Uncalled capital pending registration Uncalled non-monetary contributions, capital pending registration

Receivable on called-up capital Uncalled cap. Uncalled non-monetary contributions, cap Called-up capital of what is left (75%) – Called up People Banks, current accounts Motor vehicles Receivable on called-up capital Disbursement of what is left (75%) - Goods The Corporation calls up and requires the capital that is left. It is disbursed through Banks and Motor vehicles 558. Receivable on called-up capital - ASSET 572 and 218 – ASSETS

5. SHARE PREMIUM SET UP - JOURNALS A Corporation has been set up through shares of 10 € face value issued at 115%. Shares have been totally subscribed (100%) and disbursement has been made by the minimum required (25% share capital + 100% share premium). Expenses = 0 (to simplify). The corporation calls-up and requires 75% of share capital. It is disbursed the day after through banks. Previous calculations: 10 x 1,15 = 11,5 Issue Valuex shares = Face Valuex shares = Share Capital 11,5 – 10 = 1,5 Premium Valuex shares = Share Premium

4.1. Issue - Paper Shares issued ( x 11,5 Issued Val.) Issued Capital pending registration Uncalled capital pending registration Shares issued Subscription (100%) – Not called up People Cash, euros (25% % ) Uncalled capital pending registration Minimum required Disbursement (25% Share Capital + 100% Share Premium)

4.5. Public deed filed at the Business Registry Issued capital pending registration Share Capital Share Premium Uncalled capital (75% ) Uncalled capital pending registration Expenses = Receivable on called-up capital Uncalled cap Called-up capital of 75% – Called up People Banks, current accounts Receivable on called-up capital Disbursement of what is left (75%) - Goods