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Husband wants to go 50:50 with wife on company ownership

Husband wants to go 50:50 with wife on company...

One of my clients who has 100% ownership of his limited company, wants his wife to have 50% ownership of the company.

The company has been trading for three months and has not made profits at this stage.

The husband currently owns 100 Ord Shares in his company:

  1. Would it better to issue 100 ord shares to wife or  transfer 50 of his shares to his wife?
  2. They would be no tax implications since the company has not been a profit? Does HMRC needs to be informed? If so, what is the process?

Thanks

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21st Nov 2011 16:05

Much more to consider than this

There is so much more than the mechanics of the transfer that you need to consider here (or advise you client to).

 

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21st Nov 2011 16:27

You also need to consider

issues like if they divorce

 

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petersaxton
21st Nov 2011 16:33

Divorce

The Innkeeper wrote:

issues like if they divorce

 

Why? Even if she is not a shareholder she would still be entitled to 50% on divorce. In fact, diverting salary or dividends to wife can save on future CSA assessments.

 

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petersaxton
21st Nov 2011 16:37

Not necessarily

colinhigginson wrote:

The Innkeeper wrote:

issues like if they divorce

 

Why? Even if she is not a shareholder she would still be entitled to 50% on divorce. In fact, diverting salary or dividends to wife can save on future CSA assessments.

 

And what happens to the deadlocked company when the divorce battle is being waged?

 

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By pauld
21st Nov 2011 16:37

is it ok to..............

just complete stock transfer form to transfer 50 shares to wife and hold with company documentation. Then report the transaction on next annual return. No tax consequences on transfer as married.

Or is there more to it?

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21st Nov 2011 16:41

Would this be okay?

Thanks for the response. I am thinking of the following:

Transfer 50 shares from husband to wife.Complete a stock transfer form and submit to HMRCNo CGT since transfer is between husband to wife

What am I missing here?

Edit posted before reading pauld response.

Thanks

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ShirleyM
21st Nov 2011 16:51

Not how, if

FirstTab wrote:

What am I missing here?

You do not really need to consider the mechanics of making the transfer but the merit of doing so.

Obviously, it is your client's decision but if he is doing it purely for tax reasons (possibly based on your previous advice) you need to make sure that it has been properly thought out.

 

 

 

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21st Nov 2011 16:46

Or
Transfer 49 shares from husband to wife.Complete a stock transfer form and don't submit to HMRC No CGT since transfer is between husband to wife

 

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21st Nov 2011 16:49

Roland

Simple - just start a new company or issue shares with voting restrictions. 

I have recently had a client who for years drew a market salary (wife not a shareholder) but in recent years dropped his salary and drew a dividend in excess of profits, using the reserves brought forward. On divorce she got 50% of the company value but now the CSA are assessing his income including the excessive dividends - He has been shafted twice over!

 

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21st Nov 2011 17:37

lets rewind here people are getting uppity

 

i am sure you appreciate the ratio in 'Artic'

why do you / your client want to do it?

presumably its for dividends?

just use a share transfer form - transactions under £1k no SDLT and prob no need to alter mem and Arts which you might if you issue further shares

presume that is the case here?

what do the memo and arts say about a deadlock if 50 50

is there a casting vote otherwise 51 49 as mentiond may be better

is form 42 required otherwise just show on next AR

 

dont let people complicate it , i have dealt with divorces and they are problematic but not usually as problematic as the lawyers

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22nd Nov 2011 08:48

Carnmores is spot on

Why is everyone making this such a big deal?

Do the transfer and get on with it - I would mention in passing (maybe even as a sort of joke) "You know your wife now earns 50% of your company" ha ha.  At least you have then told them.

You really think the client isn't going to want to save thousands in tax year on year, just incase he ends up getting divorced 15 yrs down the line?  I don't.

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petersaxton
22nd Nov 2011 09:53

Because it is a big deal

JCresswellTax wrote:

Why is everyone making this such a big deal?

I am sorry but transfering 50% of your business to anyone is a big deal even if it is your spouse. I am not saying that it should not be done but that the risks & pitfalls should be fully explained to the client.

Assuming that the client does not bother with a shareholders agreement (unfortunately this is usually the case) or provides for any other means dispute resolution then the potential for a frustrated company is high.

It does not even need to proceed as far a divorce. Even a separation will presumably mean they will be unable to come to an agreement at which point the vultures will descend.

 

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22nd Nov 2011 09:14

A shareholders agreement should be put in place to cover the inevitable disagreements that will occur. I once acted in an aborted sale of a 50/50 company where no agreement existed and the husband accidently kicked the family dog on the morning of the completion meeting. The wife refused to sign, a row ensued, the purchaser walked away and I lost a fat contingency fee 

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22nd Nov 2011 09:17

.

Form 42 - do people still do that?

I know it was flavour of the month a few years ago but I must admit I keep "forgetting" to fill it in, given there are no penalties unless you get asked to do one...

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By MikeH
22nd Nov 2011 09:45

If this is soley for distribution of profit create a second class of shares and create them as dividend only shares with no other rights. Issue each person with a percentage of new shares as required. They dividend can then be paid on the new class of shares at the directors discretion. This will avoid potential worries over 'what if someone runs of with the milk person'.

http://www.smallfirmsservices.com/info/increase-share-capital.aspx

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22nd Nov 2011 12:17

Agree with Roland

It's not the loss of a proportion of the business that's at issue (that value may have to be given up in any event), it's the disruption that a disgruntled spouse/partner can cause when they have a 50% share.  It distracts from the business and can be a showstopper.

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By blok
22nd Nov 2011 15:32

.

MikeH -

You seem to be suggesting that the Husband gifts shares to Wife which are soley a right to income. 

By adopting this tactic it would have reversed the Arctic systems case and left Mr Jones with a headache and HMRC with a nice cheque.

 

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