If you’re a sole trader or a partner you needn’t worry about this because only limited companies have share capital.

Share capital is the total value of the shares which have been issued to the shareholders.

When a company is formed at least one share (a subscriber share) has to be issued. Shares are then issued to the other shareholders. These shares have to be paid for but too often nothing changes hands i.e. the shareholder doesn’t pay the company for the shares.

Accountants fiddle, make the figures agree get round this by treating the payment of the shares as having been paid from the director’s loan account.

So , keeping things simple, if a company is formed by a Mr. Smith and one subscriber share is issued the easiest way to deal with the bookkeeping is to enter the following journal entry (the date you should use is the date of incorporation).

Debit        907        Director’s Loan Account                              £1.00

Credit       901        Capital Account   A. Smith                          £1.00

So if you’re trading as a limited company I suggest you check the latest Trial Balance to make sure that:

a) There is an amount in account 901; and

b) It is the same as the total value of the issued shares.

P.S. This has over-simplified a complicated area. If you need more specific advice please contact me.