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Annvui001
Level 1

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

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.

 

 

 

7 Comments 7
Rustler
Level 15

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

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

Rainflurry
Level 12

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

@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
Level 15

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

@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
Level 12

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

@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. 

Annvui001
Level 1

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

@Rainflurry Thanks so much.

It was the purchase by Shares.  So purchased to acquire 100% shares from my friend's company. (Canada Controlled Private Corp.).  So I could be the owner of the business, and run the business.

Cost of Purchase by Shares:  $ 40000. 

Her Quickbook's Book and her financial statement both was recorded her shares $100 for 100 shares .

Base on what you suggested :

On Quickbook (the compnay's Book):  She gave me to run. 

Should I enter entries for the Purchase like this ?

DR. Advances from shareholder   $40000 ( I paid her to acquire 100 Shares from my own pocket)

CR. Capital Stock  $ 40000 (Increase my shares)

 

2)  Her side:

  She needs to report the capital gain T1 General tax return

 - Also claim Qualified Share exemptions 

 

**After the purchase, I realize it was a bad decision to get shares.  I heard that I cannot write off anything by shares (not like Asset Sale/purchase of business).

 

I was asking few CPAs in Canada..  Some of them cannot give me the suggestions, because they never encountered to this Canada Private Corp. - Business Sale by Shares. 

Some suggested like @Rustler....Some suggested like what you told me. 

 

Eventually, I got confused.

 

Thanks so much for everyone's input, to Rustler and Rainflurry.

 

 

 

 

Alex M
QuickBooks Team

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

Hi there Annvui001,

 

It's vital that all your transactions are entered properly so that your books can be well balanced. QuickBooks Desktop is a great software able to help you keep track of assets, liability, and equity of your business to see the financials of your company. I can point you in the right direction for assistance with this entry.

 

In order to know how you should be entering this money movement to represent the purchase of shares, I recommend reaching out to your accountant. They'll be able to make sure your transaction is affecting the right accounts so that everything in your books is well balanced. You can find an accountant near you that has experience using QuickBooks by checking out our Find an Accountant page.

 

If you have any other questions, feel free to reach out here.

Annvui001
Level 1

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

Hi Rainflurry.

 

If i make the journal entry. is this on the existing corporation's book? 

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