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Basic Q (Convert investments made to shares?)

techietechie subscriber Posts: 4
At the time of incorporation of my company, there were 1,000 authorized shares of which I paid for $100 for 100 shares. There are no other shareholders. Over the last year I have put in $50k of my own money into my company. We are working on a software application and everything put in gets spent on development. We will be looking to raise funds after an year.
Regarding the accounting of the $50,000, my accountant is suggesting I purchase shares worth $25,000 and show the remaining $25,000 as a loan from me to the company. Is there any logic to this? (Basically, why not issue shares for the entire amount to me?) 


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    techietechie subscriber Posts: 4
    Thanks Mike for the reply.
    Actually the logic of taking up a higher amount of shares was that we are likely to approach unsophisticated angels for fund raising initially - so this might demonstrate more personal risk taken and money put in.
    I am now considering showing the amounts received as money for application of shares, which can be refunded or shares be issued at a later time. Is this possible, or is it same as a loan?
    Thanks again
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    BeenThereDoneThatBeenThereDoneThat subscriber Posts: 0
    Why not use a secured convertible note?  Yes, you`ll load up your balance sheet with "debt" that your bank and some unsophisticated investors might not fully understand (doesn`t that go hand in hand with unsophisticated?), but it will allow you get the best of both worlds...interest on the money you loaned to the company and it can all convert to equity participation if there is ever an upside liquidity event (or rationale reason for simplifying the company`s capital structure.)  You can also throw in some warrant coverage on the principal for additional protection.  Lots and lots of ways to skin the cat.
    The most important thing to remember when jockeying the cap table and balance sheet is this...the simpler...the better.
    BeenThereDoneThat12/14/2008 4:06 PM
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