Shareholder Accounting Software

Shareholder accounting software is a great way to keep track of all the information related to shareholder accounts. It can help manage investment information, payments and dividends, as well as create reports on company activity. Shareholder accounting software will save you time by taking out the tasks that typically fall under this umbrella, like preparing annual statements and financial statements.

In this guide, we review the aspects of Shareholder Accounting Software, do shareholders have any liabilities, can a shareholder sell company assets, and how to account for shareholder investment.

Shareholder Accounting Software

Shareholder accounting software is a great way to keep track of all the information related to shareholder accounts. It can help with everything from managing investment information, payments, and dividends to creating reports on company activity. The software will make it easier for the company’s owners to interact with their investments, as well as send emails and distribute documents online.

For shareholder accounts, the company must have a representative in charge of handling them.

In order to provide the best service for your shareholder accounts, it is important to understand the differences between shareholder accounts and other types of accounts. Shareholder accounting is different from other areas of accounting because it requires a specialized knowledge and skillset.

Public companies are required by law to keep records of their shareholders, but private companies can choose whether or not they want to maintain such records. However, even if you are not a public company with thousands or millions of shareholders, there may still be benefits that come with keeping track of them in your financials. For example:

  • You can use this information as part of your marketing strategy to target potential investors who would benefit from investing in your business.
  • If any disputes arise between you and one particular investor (for example), having their contact information could help resolve things quickly without having too much stress on either side

To prevent mistakes, the software has features that help to automate the workflow processes.

To prevent mistakes, the software has features that help to automate the workflow processes. They reduce the amount of data entry and make it easier to monitor incoming investments and other capital changes. The accounting software integrates all shareholder information into one completely accessible platform.

The amount of data entry will be reduced and most processes are automated.

The more data you have to enter, the more chances there are for mistakes. Automation reduces the need to enter data manually and therefore reduces the risk of mistakes in your records.

Automation also makes it possible to integrate different processes. For example, if you have a process where you need to compare two lists and then take actions based on what is found, this can be automated using software such as Shareholder Accounting Software which will simply use information from one list (e.g., customer details) as input for another list (e.g., order details).

The management of all of these shareholder accounts will become much easier with software.

Shareholder accounting software can make all of your shareholder accounts much easier to manage. When you have a lot of investors, it can be difficult to keep track of everything that is happening with each account and make sure that it is properly monitored. Shareholder accounting software will allow you to monitor incoming investments and other capital changes from one central location, making it much easier for you to conduct your accounting. You can also get reports on how each account is doing at any point throughout the year or on specific dates as needed.

Additionally, when interest accrues on these shares (for example, if they are in savings accounts), this information will be automatically tracked by the software so that taxes are paid properly and no mistakes are made when reporting income or paying out distributions over time.

The accounting software will also make it easier to monitor incoming investments and other capital changes.

The accounting software will also make it easier to monitor incoming investments and other capital changes. For example, let’s say you’ve invested $5 million in your company and then decide to invest another $5 million. The accounting software will allow you to easily see how much money is coming in, how much money is going out, and how much is still available.

Shareholder accounting software can be especially helpful when interest accrues on the shares.

Shareholder accounting software makes it easy to manage shareholder accounts and make payments.

Shareholder accounting software also makes it easier to monitor incoming investments and other capital changes.

It makes for simpler reporting by integrating all shareholder information into one completely accessible platform.

Shareholder accounting software makes for simpler reporting by integrating all shareholder information into one completely accessible platform. It can be used to track payments, interest accrues and the value of shares, as well as the number of shares owned by each shareholder. This is an important feature because it helps companies determine if they need to make additional payments or not.

In addition to helping companies find out what they owe their shareholders, shareholder accounting software also allows them to keep track of shareholders’ interests and records any changes in ownership status (such as when a company buys back its own stock). It also tracks stock splits, dividends paid out by the corporation, mergers with other entities and more.

Good shareholder accounting software makes it easy to manage shareholders’ accounts and make payments.

Good shareholder accounting software makes it easy to manage shareholders’ accounts and make payments. It will also save you time by making it possible for you to report on shareholder accounts, and track their activities. You should look for a solution that allows you to:

  • View the names of all shareholders, along with contact details
  • View the number of shares each shareholder owns
  • See how many days since the last payment was made from each account

do shareholders have any liabilities

Are Shareholders Personally Liable for the Debts of a Company?

Shareholder only have ‘limited liability’ for the debts of the company. That means they are only responsible for company debts up to the value of any shares, (assuming no personal guarantees have been signed).  

This is all down to the principle of separate legal personality. When a business is incorporated i.e. it becomes a private limited company (LTD), public limited company (PLC), or limited liability partnership), the company and its shareholders become two separate legal entities. The company becomes responsible for its own finances and assets, which are not intertwined with the personal finances and assets of its shareholders.

Liability in Companies Limited by Shares

In a company limited by shares, the liability of the shareholders for company debts is limited to the capital originally invested in the business i.e. the nominal value of the shares they own.

If a shareholder has not paid up the whole value of their shares then the company can call for all or the remaining share capital contribution to be paid.

Liability in Companies Limited by Guarantee

Not-for-profit organisations such as charities, societies and community projects are often set up as private companies limited by guarantee. They are separate legal entities responsible for their own income, assets and debts, but instead of issuing shares, the company is owned by guarantors.

Their personal liability for company debts is limited to a fixed amount of money called a guarantee. This is a fixed sum that’s written into a company’s Memorandum of Association and is usually just £1.

Liability for Debts in LLPs

The personal liability for company debts of the partners in an LLP is limited to the capital they have invested in the business. So, if an LLP can’t pay its debts, the partners only have to pay out any money they’ve put into the company and nothing more.  

– As a shareholder, you are only responsible for company debts up to the value of your shares

– In a company limited by shares, your liability is limited to the capital invested in the business

– In a company limited by guarantee, the contractually defined guarantee amount, usually £1, decides the extent of your liability

Is a Shareholder ever Personally Liable for Company Debts?

There are some circumstances when the shareholder of a limited company can become personally liable for its debts. One example is when a shareholder of the business provides a personal guarantee on a loan that the company takes out. In that case, the shareholder(s) who gave the guarantee will be personally liable if the loan cannot be repaid.

Where a shareholder is also involved in the day-to-day operations as a director or officer of the company, they could also be made personally liable for company debts if they:

Read more about the circumstances when a company shareholder/director could be made personally liable for company debts.

What are the Benefits of Shareholder Limited Liability?

The fact that the liability of a shareholder is limited is a very important aspect of the incorporation process. It encourages investment into the company and attracts new shareholders who can be confident that if the company does fail, they will only lose the value of their original stake.

There are also benefits when it comes to the transfer of shares, as other investors will be more willing to make an investment. There can also be more certainty and clarity when it comes to determining the assets available to the company’s creditors.   

If you want confidential, no-obligation advice about your personal liability for company debts, or are concerned how your liability could be affected by an impending insolvency, please call us on 0800 074 6757, email info@companydebt.com.  

can a shareholder sell company assets

When disputes between shareholders escalate, one of the shareholders may be tempted to transfer the business to a new entity. Can the shareholder be stopped if he succeeds in obtaining a majority vote?

THE FACTS:

In a recent Austrian case, shareholder A (47.5%), sold the assets of a company with limited liability (GmbH) shortly after becoming the sole managing director with the support of the minority shareholders (5%). The sale was approved by a shareholders’ resolution, passed with the support of the same minority shareholder (5%), i.e. with a simple majority.  The purchase price of the assets was only minimally higher than the company’s debts, which the company retained in the deal.

Shareholder B (also 47.5%), the former, recently displaced managing director, objected, and applied for a prohibitory injunction against both the company and its managing director, additionally requesting interim injunctive relief to stop the sale. The injunctions were aimed at prohibiting the implementation of the shareholders’ resolution and stopping the Purchase Agreement.

THE DECISION:

In deciding whether to issue these interim injunctions, the Austrian Supreme Court took the opportunity to clarify a number of corporate and procedural issues:

1. INTERIM INJUNCTION – IRREPARABLE DAMAGE

Sec 48 para 4 of the Austrian Act on Companies with Limited Liability provides that if there is a risk of irreparable damage to the company (not to a shareholder!), the courts may issue an interim injunction prohibiting the implementation of a shareholders’ resolution.

In a recent decision, the Supreme Court had denied an interim injunction aimed at preventing the sale of the company’s customer list, holding that the company had obtained a fair price for the sale which it could invest, thus compensating for the deprivation of ongoing proceeds from these listed customers during the proceedings. Practitioners criticized this decision, pointing out that once the customer base is lost, it cannot simply be “re-purchased”, and as it is lost for good, the damage is actually irreparable.

The Supreme Court cited this criticism in the current case and held that the sale of the entire assets of the company at a price only marginally higher than its debts (which were not part of the sale) does not, in any event, compensate the company for the lack of ongoing proceeds. Even if the Purchase Agreement were to be reversed in the main proceedings, the company would not be able to recover the damage incurred. Moreover, the court noted, the assets sought to be sold included an extremely advantageous lease of business property. Under the Austrian Rental Act, if the tenant sells essentially all its assets to a third party, the landlord is entitled to raise the rent substantially. This, the court acknowledged, caused further, potentially irreversible, damage to the company.

In view of these otherwise non-recoverable damages, the lower court’s interim injunction against the company was held to be justified.

2. INTERIM INJUNCTION AGAINST MANAGING DIRECTOR

A particularly controversial issue in this case was the question of whether a minority shareholder could apply on behalf of the company for an interim injunction against the managing director, against whom the shareholder himself had no direct claims.

It is a settled principle under Austrian law that an individual shareholder of a corporation is not entitled to directly instruct the managing director(s). The proper forum to address such matters is the shareholders meeting or through circular written resolutions. (Certain exceptions apply for companies with limited liability if all the shares are held by a sole shareholder.) The managing director has no legal relationship with the shareholders; his legal relationship is with the company. He is, moreover, generally liable only to the company and not to the shareholders. Consequently, shareholders are generally unable to force the managing director(s) to act (or not act) in a certain way, also not by way of injunctions, interim or otherwise.

However, the corporate senate of the Austrian Supreme Court reasoned in this case that the point of the interim injunction is to secure the enforceability of the judgment in the main proceedings. If this aim can be served by an injunction that is enforceable directly against the managing director, it is irrelevant whether the shareholder applying for the injunction has a material right to prohibit the managing director from implementing the contract. The managing director, on the other hand, can have no independent interest in implementing the shareholders’ resolution on the sale of the assets during the pending proceedings. As a result, the minority shareholder’s application for an interim injunction against the managing director was allowed.

SALE OF SUBSTANTIAL ASSETS REQUIRES PRIOR APPROVAL WITH INCREASED MAJORITY

A further problematic issue was whether a simple majority was sufficient for a resolution approving the sale of all assets of a GmbH.

Sec 237 of the Austrian Stock Corporation Act requires that the transfer of all of the stock corporation’s assets requires prior approval in the form of a shareholders’ resolution. Failure to obtain such approval will make the transfer agreement invalid.

There is no corresponding rule for companies with limited liability (GmbHs).

In this context, the lower courts had applied the so-called Holzmüller Doctrine that was developed as case law in Germany and has been discussed at length in Austrian and German professional literature. Under this doctrine, management-initiated structural measures that severely impact the rights of the shareholders require the approval of the shareholders. Examples of the doctrine’s applicability include the sale of important subsidiaries and pushing substantial business units down to subsidiaries. According to the Holzmüller doctrine, in such cases the management is required to obtain prior approval, regardless of whether such approval is required under the company statutes; failure of such approvals can result in the management being subject to liability, provided however, that any contracts will remain valid.

The Supreme Court in the instant case, however, refrained from applying the Holzmüller doctrine and instead focused on Sec 237 of the Stock Corporation Act. After citing the Austrian and German legal literature at some length, the Supreme Court found that Sec 237 of the Stock Corporation Act applies mutatis mutandis to companies with limited liability (GmbHs), explaining that there is no reason to differentiate between stock corporations and GmbHs, as in both corporate forms extensive changes to the company’s structure require the shareholders’ prior approval.  The sale of substantially all assets of the company, therefore, requires the prior approval of the Assembly with a majority of at least 75%. Consequently, the Purchase Agreement was held to be invalid and the application for prohibitory injunction allowed.

COMMENT:

Litigators and corporate practitioners will welcome that the Austrian Supreme Court has provided shareholders with an effective tool to prevent the de facto dismantling of a company during ongoing proceedings. In the case at hand, the acting managing director/shareholder had sold the company’s assets to a company directly under the influence of relatives of the director’s husband and had clearly intended to quickly finalize the sale. She, presumably, had little interest in the remaining shell of the GmbH, and in all likelihood intended to pursue the business in the new entity without interference from her former, warring, co-shareholder. An interim injunction against the company itself is, in such situations, often toothless.  An enforceable injunction against the acting managing director/shareholder, on the other hand, has a more profound effect: Individuals are as rarely as indifferent to severe monetary fines issued against themselves personally as they may be about fines issued against the – exposed – company.

Some disappointment may result from the Austrian Supreme Court remaining reluctant to take a stance on the Holzmüller doctrine. The corporate senate of the Austrian Supreme Court appears to feel more comfortable applying an analogy to “written law”, i.e. to the provisions of the Stock Corporation Act, to the slippery slope of “unwritten law”. For now, practitioners will have to continue living with legal uncertainty as to when, over and above the instances set out in the company’s statutes and written law, structural measures will have to be submitted to the shareholders meeting for approval.

how to account for shareholder investment

Equity, typically referred to as shareholders’ equity (or owners’ equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation. In the case of acquisition, it is the value of company sales minus any liabilities owed by the company not transferred with the sale.

In addition, shareholder equity can represent the book value of a company. Equity can sometimes be offered as payment-in-kind. It also represents the pro-rata ownership of a company’s shares.

Equity can be found on a company’s balance sheet and is one of the most common pieces of data employed by analysts to assess a company’s financial health.

How Shareholder Equity Works

By comparing concrete numbers reflecting everything the company owns and everything it owes, the “assets-minus-liabilities” shareholder equity equation paints a clear picture of a company’s finances, easily interpreted by investors and analysts. Equity is used as capital raised by a company, which is then used to purchase assets, invest in projects, and fund operations. A firm typically can raise capital by issuing debt (in the form of a loan or via bonds) or equity (by selling stock). Investors usually seek out equity investments as it provides a greater opportunity to share in the profits and growth of a firm.

Equity is important because it represents the value of an investor’s stake in a company, represented by the proportion of its shares. Owning stock in a company gives shareholders the potential for capital gains and dividends. Owning equity will also give shareholders the right to vote on corporate actions and elections for the board of directors. These equity ownership benefits promote shareholders’ ongoing interest in the company.

Shareholder equity can be either negative or positive. If positive, the company has enough assets to cover its liabilities. If negative, the company’s liabilities exceed its assets; if prolonged, this is considered balance sheet insolvency. Typically, investors view companies with negative shareholder equity as risky or unsafe investments. Shareholder equity alone is not a definitive indicator of a company’s financial health; used in conjunction with other tools and metrics, the investor can accurately analyze the health of an organization.

Formula and How to Calculate Shareholders’ Equity

The following formula and calculation can be used to determine the equity of a firm, which is derived from the accounting equation:

Shareholders’ Equity = Total Assets − Total Liabilities \text{Shareholders’ Equity} = \text{Total Assets} – \text{Total Liabilities} Shareholders’ Equity=Total Assets−Total Liabilities

This information can be found on the balance sheet, where these four steps should be followed:

Shareholder equity can also be expressed as a company’s share capital and retained earnings less the value of treasury shares. This method, however, is less common. Though both methods yield the exact figure, the use of total assets and total liabilities is more illustrative of a company’s financial health.

What the Components of Shareholder Equity Are

Retained earnings are part of shareholder equity and are the percentage of net earnings that were not paid to shareholders as dividends. Think of retained earnings as savings since it represents a cumulative total of profits that have been saved and put aside or retained for future use. Retained earnings grow larger over time as the company continues to reinvest a portion of its income.

At some point, the amount of accumulated retained earnings can exceed the amount of equity capital contributed by stockholders. Retained earnings are usually the largest component of stockholders’ equity for companies operating for many years.

Treasury shares or stock (not to be confused with U.S. Treasury bills) represent stock that the company has bought back from existing shareholders. Companies may do a repurchase when management cannot deploy all of the available equity capital in ways that might deliver the best returns. Shares bought back by companies become treasury shares, and the dollar value is noted in an account called treasury stock, a contra account to the accounts of investor capital and retained earnings. Companies can reissue treasury shares back to stockholders when companies need to raise money.

Many view stockholders’ equity as representing a company’s net assets—its net value, so to speak, would be the amount shareholders would receive if the company liquidated all of its assets and repaid all of its debts.

Example of Shareholder Equity

Using a historical example below is a portion of Exxon Mobil Corporation’s (XOM) balance sheet as of September 30, 2018:

The accounting equation whereby Assets = Liabilities + Shareholder Equity is calculated as follows:

Other Forms of Equity

The concept of equity has applications beyond just evaluating companies. We can more generally think of equity as a degree of ownership in any asset after subtracting all debts associated with that asset.

Below are several common variations on equity:

Private Equity

When an investment is publicly traded, the market value of equity is readily available by looking at the company’s share price and its market capitalization. For private entities, the market mechanism does not exist, so other valuation forms must be done to estimate value.

Private equity generally refers to such an evaluation of companies that are not publicly traded. The accounting equation still applies where stated equity on the balance sheet is what is left over when subtracting liabilities from assets, arriving at an estimate of book value. Privately held companies can then seek investors by selling off shares directly in private placements. These private equity investors can include institutions like pension funds, university endowments, insurance companies, or accredited individuals.

Private equity is often sold to funds and investors that specialize in direct investments in private companies or that engage in leveraged buyouts (LBOs) of public companies. In an LBO transaction, a company receives a loan from a private equity firm to fund the acquisition of a division of another company. Cash flows or the assets of the company being acquired usually secure the loan. Mezzanine debt is a private loan, usually provided by a commercial bank or a mezzanine venture capital firm. Mezzanine transactions often involve a mix of debt and equity in a subordinated loan or warrants, common stock, or preferred stock.

Private equity comes into play at different points along a company’s life cycle. Typically, a young company with no revenue or earnings can’t afford to borrow, so it must get capital from friends and family or individual “angel investors.” Venture capitalists enter the picture when the company has finally created its product or service and is ready to bring it to market. Some of the largest, most successful corporations in the tech sector, like Google, Apple, Amazon, and Meta—or what is referred to as GAFAM—began with venture capital funding.

Types of Private Equity Financing

Venture capitalists (VCs) provide most private equity financing in return for an early minority stake. Sometimes, a venture capitalist will take a seat on the board of directors for its portfolio companies, ensuring an active role in guiding the company. Venture capitalists look to hit big early on and exit investments within five to seven years. An LBO is one of the most common types of private equity financing and might occur as a company matures.

A final type of private equity is a Private Investment in a Public Company (PIPE). A PIPE is a private investment firm’s, a mutual fund’s, or another qualified investors’ purchase of stock in a company at a discount to the current market value (CMV) per share to raise capital.

Unlike shareholder equity, private equity is not accessible to the average individual. Only “accredited” investors, those with a net worth of at least $1 million, can take part in private equity or venture capital partnerships. Such endeavors might require form 4, depending on their scale. For investors who don’t meet this marker, there is the option of private equity exchange-traded funds (ETFs).

Home Equity

Home equity is roughly comparable to the value contained in homeownership. The amount of equity one has in their residence represents how much of the home they own outright by subtracting from the mortgage debt owed. Equity on a property or home stems from payments made against a mortgage, including a down payment and increases in property value.

Home equity is often an individual’s greatest source of collateral, and the owner can use it to get a home equity loan, which some call a second mortgage or a home equity line of credit (HELOC). An equity takeout is taking money out of a property or borrowing money against it.

For example, let’s say Sam owns a home with a mortgage on it. The house has a current market value of $175,000, and the mortgage owed totals $100,000. Sam has $75,000 worth of equity in the home or $175,000 (asset total) – $100,000 (liability total).

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