Formation of X Society: Capital and Shareholder Disputes

Initial Capital Contribution and Incorporation

Three classmates, having completed their studies in Governing Finance Society, decided to form X Society. The initial capital of X Society was set at €60,000.00, with shares having a nominal value of €10.00 each. On April 1st, the founders contributed €15,000.00 to an account opened on behalf of X Society. The company's incorporation was recorded in the Commercial Register on April 20th.

Initial Accounting Entries (April 1st - April 20th):

• Upon issuance of registration:
  Debit: €60,000 (Account 190)
  Credit: €60,000 (Account 194)
• Accounting for disbursement:
  Debit: €15,000 (Account 566)
  Debit: €45,000 (Account 1034)
  Credit: €60,000 (Account 190)
• Registration in the Commercial Register:
  Debit: €60,000 (Account 194)
  Debit: €15,000 (Account 572)
  Debit: €45,000 (Account 1030)
  Credit: €60,000 (Account 100)
  Credit: €15,000 (Account 566)
  Credit: €45,000 (Account 1034)

First Dividend and Defaulting Shareholder

Subsequently, the company required the first dividend payment of 25% of the share value. Only two partners fulfilled this requirement, and the funds were deposited into the company's current account.

Accounting Entries for Dividend Requirement and Disbursement:

• The requirement:
  Debit: €15,000 (Account 558)
  Credit: €15,000 (Account 1030)
• For the disbursement:
  Debit: €10,000 (Account 572)
  Debit: €5,000 (Account 5581)
  Credit: €15,000 (Account 558)

Limited enforcement proceedings were initiated against the defaulting shareholder for the undelivered portion of the capital and accrued interest. The society incurred €200.00 in legal costs. The defaulting shareholder eventually paid the debt, including interest and expenses.

Accounting Entries for Legal Proceedings and Recovery:

• Expenses incurred:
  Debit: €200 (Account 629)
  Credit: €200 (Account 572)
• Recovery from the defaulting shareholder:
  Debit: €5,450 (Account 572)
  Credit: €5,000 (Account 5581)
  Credit: €250 (Account 769) (Interest)
  Credit: €200 (Account 759) (Expenses)

Second Dividend, Share Duplication, and Capital Reduction

The company then required another outstanding dividend liability. One shareholder failed to pay. The company proceeded to issue duplicate shares, which were successfully sold. This necessitated a reduction in capital.

Accounting Entries for Second Dividend, Share Duplication, and Capital Reduction:

• The requirement of dividend liabilities:
  Debit: €15,000.00 (Account 558) (25% of 75,000)
  Credit: €15,000.00 (Account 1030)
• The release:
  Debit: €5,000.00 (Account 5581)
  Debit: €10,000.00 (Account 572)
  Credit: €15,000.00 (Account 558)
• For the duplicate shares:
  Debit: €20,000.00 (Account xxx) Duplicate Shares
  Credit: €20,000.00 (Account xxx) Shares Canceled
• Expenses incurred:
  Debit: €150.00 (Account 629)
  Credit: €150.00 (Account 572)
• The release of the new shareholders:
  Debit: €15,000.00 (Account 572) (75% of €20,000.00)
  Debit: €5,000.00 (Account 103)
  Credit: €20,000.00 (Account xxx) Duplicate Shares
• Termination with defaulting shareholders:
  Debit: €20,000.00 (Account xxx) Shares Canceled
  Credit: €5,000.00 (Account 1030)
  Credit: €5,000.00 (Account 5581)
  Credit: €200.00 (Account 769)
  Credit: €150.00 (Account 759)
  Credit: €9,650.00 (Account 572)
• Reduction of capital:
  Debit: €20,000 (Account 100)
  Credit: €20,000 (Account xxx) Duplicate Shares
• Termination of the defaulting shareholder:
  Debit: €20,000 (Account xxx) Shares Canceled
  Credit: €5,000 (Account 5581)
  Credit: €15,000 (Account 778)