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A
Annvui001
May 27, 2022
Question

How to record Journal entry in Quickbook for Share purchase, sell, share transfer between new business owner

  • May 27, 2022
  • 2 replies
  • 0 views

Buying a company by share purchase for Canadian private corporation:

I purchase a company from a friend for $ 40000 by Share.

- basically I gave her $40K by buying all shares from a friend's Canada private corporation.

- However, for many years, my friend has always recorded her Capital Stock value in her book as $100 for 100 shares.

1. How do I record my journal entry of paying that $ 40K as business purchase by Share in Quick book ?

   (She was the owner of the corporation)

2. Does she need to pay any capital gain taxes after selling her Shares to me ?

Thank you for any suggestions.

 

 

 

2 replies

Rustler
Rustler
May 27, 2022

Since the shares of stock already exist, they are not a new issue in other words, there is no entry in the books for your purchase. If she had 100 shares, then you have 100 shares. The transaction is personal between the two of you. All that changes is the name of the shareholder

N
nastasc
June 7, 2024

but how do you adjust now the books for the shares new value?

Rainflurry
Rainflurry
May 27, 2022

@Annvui001

 

You need to make an entry to record your purchase because your basis ($40K) is not the seller's basis ($100).  If you don't make an entry, you likely will eventually end up with a gain of $39,900 ($40K - $100) that you don't have because you didn't record your basis of $40K.  @Rustler  - That could be a potential cap gain tax of $19,950! (I believe Canada's cap gain rate is 50%?).  

 

Record the stock purchase as a debit to Business Stock (asset account) and credit to either cash or equity depending on where the closing funds came from.

Rustler
Rustler
May 28, 2022

@Rainflurry 

I'm not up on Canadian taxes, but I thought shares of stock were issued by the company at par value and sold to shareholders - thus the shares are owned by the purchaser and not the company.  So if I buy shares of stock directly from another shareholder, the transaction is between us and does not affect the company financials (other than the name and qty changes - which QB is not capable of)

Rainflurry
Rainflurry
May 28, 2022

@Rustler 

 

You are correct when you buy stock personally but, in this case, the OP purchased the business by acquiring 100% of the company's stock.  Similar to when you purchase a business in an asset sale and you record the assets purchased as assets on the balance sheet, the stock purchased in a stock sale sits on the books as assets.  This is generally advantageous to the seller (in the US anyway) because the gain on the sale is subject to lower cap gains rates but it is generally disadvantageous to the buyer because they lose the ability to depreciate any goodwill that would exist in an asset sale or the stepped-up basis of the assets purchased. 

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