A person subscribing for newly issued shares may meet the
subscription price by making a payment to the company. However, if
the subscriber has previously lent money to the company the
subscription price may be met simply by reducing the amount
outstanding on the loan account.
The approach to cases in which a loan is converted to shares
will depend on whether the issue is treated as a share
reorganisation to which TCGA92/S127 applies. If the issue is such a
share reorganisation the allowable cost of the new shares may have
to be restricted if the transaction is not a bargain made at arm's
length, see
VCM48100. Otherwise the special rules on
the satisfaction of debts will apply. These may restrict the
allowable cost of the new shares to their market value when they
were issued whether the transaction was a bargain made at arm's
length or not, see
VCM48150.
