Issuing stock for services rendered

By: Rashid Javed | Updated on: July 21st, 2017

Companies frequently avail services of outside individuals, firms and companies. The cost of such services may be paid in the form of shares of the company’s stock.

As no cash outflow is involved, this method of payment is appealing especially to newly incorporated and cash poor companies. The major problem involved in such transactions is the determination of value.

The general rule of recording issuance of stock for services is similar to the rule of issuing stock for non-cash assets. It is recorded on the basis of fair market value of services availed or the fair market value of  shares issued whichever can be objectively determined.

For better understanding the procedure of valuation and recording, consider the following example:

Example:

The Western company hired HK firm for legal services. The HK firm agreed to receive 500 shares of Western company’s stock as consideration of legal services provided. The par value per share was $5.

Required: Make journal entries to record above transaction in each of the following cases:

  1. The fair market value of stock is $5,500 but fair market value of legal services is not known.
  2. The fair market value of legal services is $6,000 but fair market value of shares issued is not known.

Solution:

(1). When the fair market value of stock issued is known:

issuing-stock-for-services-rendered-img1

(2). When the fair market value of legal services availed is known:

issuing-stock-for-services-rendered-img2

A D V E R T I S E M E N T
6 Comments on Issuing stock for services rendered
  1. Kirk Anderson

    Can a pink sheet company (not an SEC reporting company) issue millions and millions of shares to ‘entities’ or ‘people’ for services rendered and then claim that all of these people didn’t want their names revealed? In other words, the company is not telling us who they are issuing the shares to. They could very well be issuing shares to themselves or friends.

    Is there any SEC rule that forbids holding back the name(s) of entities or people who are receiving shares from the company for services rendered? I would think the company has to tell us who they are, if for nothing else than transparency.

    Thank you!

    1. Neil Hauser

      Declared income. ?

  2. Safa Elnaeim

    Thank you for this simple and clear way for isuue of share

  3. tina

    If we received stock in lieu of cash payment, are we every able to recognize the sale as operating income rather than gain on the sale of an investment? Thank you.

  4. Jay

    If you pay stock to a consultant for services so you have to report on 1099-MISC or now 1099-NEC (when paid to an individual)?

    Also, if some provided $5,000 in services, but got $6,000 in stock (discounted). So you report $5,000 the FV of the services, or $6,000, the FV of the stock received.

  5. she

    If the land has appraised value, and the share traded (fair market value) at the date of issuance? what will be use? the par value or the traded share in NSE?

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