dhughes1975
Blogger
Share this content
0
3
951

Retiring partner/shareholder

Retiring partner/shareholder

We've looked into the various ways of facilitating the purchase of the departing shareholder shares and have considered a company purchase of own shares, for which I think we satisfy all of the conditions and I'm confident we could get approval for the capital method to apply.

My question is this, whilst we can see how this benefits the seller as the capital method will result in a much lesser tax bill than the distribution method, what are the benefits to us, the remaining shareholders?

Is there any reason why a company purchase of own shares would be more beneficial to us that us buying the shares from the departing shareholders as individuals?

Other than the logistics of having to find the money to do so, is there any tax benefit to it? 

Many thanks in advance for any advice given.

Replies

Please login or register to join the discussion.

avatar
By blok
06th Sep 2011 12:10

.

You have covered the main points, basically POS is a good method to dillute the exiting shareholders position with no need for you to withdraw cash from the company and the consequences that brings..

The vendor will have the same tax position whether he sells to you or back to the company.

 

Thanks (0)
avatar
davidhill
06th Sep 2011 16:28

Thanks for the response blok.

So, basically, the benefit to the remaining shareholders is that they can effectively buy the other guy out without having to vote (and pay tax on) dividends etc in order to fund the deal?

 

Thanks (0)
avatar
By blok
06th Sep 2011 16:49

.

I like to think of its like this sometimes:

If the company has been properly valued there should be no effect on the position of the remaining shareholders.  The company's balance sheet will be reduced by the cash payment which should be the equivalent to the departing shareholders equity interest.  On paper it's a non event for the guys that are left.  They will be entitled to share in the growth from the next day onwards however. 

However, If it was a person to person buy out then the purchaser will have to use personal money and it will seem like a further investment in shares to him. 

Thanks (0)