Selling shares back to a company

Selling shares back to a company

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Hi

I own 50% of a Ltd company with my business partner who owns the other 50%. 

I would like to part company and my business partner wants to continue with the company and buy my 50% share.

My accountant has suggested that the best way to sell my share is back to the company, this way I will only have to pay capital gains less entrepreneurs' relief.

My question is how to 'account' for the sale of the share back to the company, what documents would I need to create i.e. Invoice? and what documents would the company need to generate?  Since I am not VAT registered (but the company is) no VAT would be added to my invoice?

Please could someone help me with this,

Many thanks

Bill

Replies (3)

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By Marion Hayes
18th Sep 2011 20:33

Need clarification of issues

If you sell your shares to an individual it is a capital gains event and if the shares qualify for ER you will be liable to 10% CGT. If they do not it will be18/28%.

If selling to the company your fellow director does not need to raise the capital.BUT this is a very specialist area and you need to get proper tax advice on whether the company and your own circumstances are such that

a) a company buyback would be possible - there are conditions which have to be met

and

b) whether you will be allowed to treat the buy back as a capital rather than an income distribution, HMRC clearance and approval have to be sought for this to be achieved.

If your tax specialist advises you to pursue a company buyback this is not a sale in the sense you discuss but a company secretarial issue with special forms which need to be lodged at companies house as well as with HMRC so again specialist advice is needed to ensure you comply with regulations.

Please take further advice

regards

Marion

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Teignmouth
By Paul Scholes
19th Sep 2011 09:30

Just to add to above

As Marion says, unless certain conditions are met, a buy back of shares by the company will be treated as an income distribution (ie dividend) to you.  The conditions that would allow it to be treated as a capital distribution (therefore being taxed as a capital gain with ER's relief) revolves around the buy back being for the benefit of the trade, rather than say your personal or tax benefit.

This, most often occurs when two people fall out or where an older generation of owner/manager want to make way for a younger generation.  So, as Marion says, unless you are 100% certain that such is the case the company would have to apply for clearance to HMRC to have it treated as a capital distribution, plus you have several company law hoops to jump through to achieve a buy back.

Consequently, by far the easiest way to achieve this, is for your partner to buy your 50% from you and so it would be interesting to know why your accountant suggests a purchase by the company.

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By DMGbus
19th Sep 2011 11:31

Buy back has tax advantages to remaining shareholder

The company buy back method normally requires clearance with HMRC - explaining to HMRC the business need.  There are speciliast accountancy firms / tax advisors who can advise on  this and recognise the advantages to be obtained.

The most obvious advantage is that the remaining shareholder does NOT have to use taxed income to buy the shares (otherwise might have to have a large dividend (taxed @ top marginal tax rates for the individual) to top up the Directors Loan Account to afford the debit for a company cheque to be issued to buy the shares).

I've never done a share buy back procedure myself, but if the need / opportunity arose I'd seek advice of a specialist who is well versed in these matters.

 

 

 

 

 

 

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