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I have just been told by a client that one of the two directors wants to draw out the £10k from the company that he paid for the company two years ago.

The only problem is that this is the first I have heard of this transaction and it hasn't been reflected in the accounts. I took this client over last year and did not do the accounts in the year of change.

One old director sold to new director for £10k. The new director paid this personally and it has never hit the accounts of the company. The new director now wants this cash back from the profitable company.

Should this £10k that was paid ,that was for all the assets of the company but around £9,000 was goodwill, have been brought into the company accounts with the £10k showing as owing to the new director?

If so, can i bring this in now?



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01st Aug 2012 07:16

I bought a car and now I want to get my money back from the car

Should we all do this?

If somebody bought a company they can't "ask for the money back from the company". There is no sense in this at all. What's goodwill got to do with it?

Tell the director that there's no goodwill and they can't get back something that doesn't exist. If they are sole shareholder suggest that they take a dividend - subject to any tax implications.


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What was the £10K for

This sounds more like a personal transaction for the old director's shares which had been valued by bringing in a value of goodwill? You say there are now 2 directors, was the other around at the time?  If so the company may not have changed but the people have.

Any paperwork written up at the time?

If it ends up as a company transaction then you could do a prior year adjustment in the accounts to reflect it.

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01st Aug 2012 09:47

Agree with above.

What does the paperwork say? Has shareholding actually changed hands? You can look at past annual returns to see if there was a transfer of shares. Ie. the annual return before the hand over of £10,000 and the last 2 annual returns submitted.

If not, what other paperwork is there for the exchange of £10,000.

If no paperwork, then various scenarios could have happened:

1) Gift from one person to another.

2) Loan from one person to another.

3) Purchase of shares.

I just cannot see how the director can have purchased goodwill from the company, if that same company is still operating the same way. For me it sounds like there has been no purchase of assets or goodwill as the company still owns both.

Question that I would go back to the directors on:

1) Was a solictor or accountant involved with the original transaction?

2) What paperwork was signed and can I have a copy?
3) If no paperwork signed, ask both directors for their version of events?

You may have to advise one party to seek legal advice to recover the £10,000 paid.

If shareholdings were transferred and they are now 50/50 shareholders, then what the director may be implying is that they want a dividend paid to them (as shareholder) in order to withdraw the capital they considered they invested. You would then have to consider a dividend waiver for the other party and consider whether there is sufficient reserves. This would obviously have to be agreed by both parties, and be declared on the personal tax of that individual. If this director is a higher rate person, then the dividend payment would have to take account on any higher rate tax payable and the net payment would be more than £10,000.



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