As per my understanding the company can pay off the pre registration charges to its Sponsors in either of the two ways.
1. Pay in Cash
2. Issue shares against such expenses
If the company wishes to issue shares, would it be shown in the balance sheet as a normal issue (issued for Cash) of Shares Issued for Consideration other than Cash?
Dear Mahmood Sahib,
Certainly a company can use both the above methods to pay back the incorporation expenses incurred by the sponsors.
In my view, sponsors have incurred these expenses and paid out in cash on behalf of the company. Therefore, any shares issued to them would be categorized as "FULLY PAID IN CASH".
If there is any exception, please let me know.
Regards,
Kamran.
Dear Kamran Sahib,
I agree with your opinion that such shares would be classified as issued against cash. But a word of caution here for other users of the forum, one should also keep in mind the fact that the shares may be issued in excess of the amount of such expenses. In that case, shares equivalent to the amount of expense would be shown as PAID IN CASH but the excess shares (may be for the services rendered by the Sponsors) would be classified as SHARES ISSUED FOR CONSIDERATION OTHER THAN CASH.
Off course you are right.
Thank you for clarification.
Regards,
Kamran.