Director Share transfers

Shareholder leaves, shares remain

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Hello, 

This quuestion has two parts.

A shareholder & Directors left the company and the company paid him for his shares using a rate that all shareholders and directors agreed upon (co. valued at % of profits). 

Initial allocation

SH1: 30%, SH2: 30%, SH3: 20%, SH4: 20%

The company paid SH4 to buy back the shares and the shares were just reallocated between the SH's

SH1: 37.5%, SH2: 37.5%, SH3: 25%

How do I account for this? My assumption was that the value of ordinary shares increases by the buy back value and as far as the other sharholders are concerned the company has just had a bonus share issue?

 

 

The second issue is that later the 3 remaining SH's agree that they can all be equal shareholders. Therefore SH1 and SH2 give up some of their shares and transfer to SH3. However no money has changed hands and they do not wish to. Is this possible and if so how do I account for this change?

 

Thank you in advance.

Replies (2)

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By The hound
21st Sep 2016 02:41

Your question is confusing did the company buy back the shares in which case they will be cancelled or where they reallocated to the remaining shareholders?

What do the Articles of association say vis a vis the company buying back its shares?

Have the necessary resolutions been passed and Company House informed within the 28 day time limit?

One would expect the Shareholders agreement to cover the situation. If there isn't one in place the remaining shareholders would be advised to make a shareholders agreement.

If the company has not bought the shares back but the remaining shareholders have bought the shares from the departing shareholder with funds taken from the company, then they will have to account to the company for the money they have taken from it.

The Arts and shareholders agreement will be relevant when registering the new shareholdings.

The appropriate resolutions should be in place.

The tax issues are complex clearly you are too late to obtain advance clearance from HMRC for treatment of the buy back to be classified as capital.

The transfer of the shares between shareholders will be capital transactions and deemed to be at market value.

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By User deleted
21st Sep 2016 06:38

I would agree with the previous comments:

1. You say the company paid the leaving director for his shares. So it appears to be a buyback, in which case the shares bought back ought to be cancelled.

Buy back involves a whole lot of company law paperwork at the company level, and the leaving shareholder may have to think about his/her tax consequences as well.

2. There is no 're-allocation' of bought back shares; they are simply cancelled. So if the share capital before buy back was £100, after buy back of £20, the capital will be £80 made up of 80 shares (30:30:20 shares). The shareholder with 30 shares will then own 37.5%, and the 20 shares will be worth 25% (20/80).

I think it's advisable that you seek paid for external advice.

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