Hello all
I am interested in buying a cleaning company with turnover of about £60,000 for £20,000 from the owner who owns all the 10 shares in the company.
I wanted to know how would I treat this purchase?
Will I have 10 shares worth £200 each? will it be loan to the company? Will it be goodwill? 19900 Preference share?
Any expalination is greatly appreciated please.
thanks
Replies (17)
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Get an accountant
Sorry but if you are going to part with £20,000 I would really suggest you go and get some good paid for advice.
Shares already issued
You are just buying shares from a shareholder. It's nothing to do with the company. You really need an accountant for so many other reasons.
Care needed
An accountant is useful re this, as is a solicitor.
When you buy the shares, and presumably take over the company, it (the company) is still responsible for everything it did prior to your purchase of the shares; if vat/tax fiddled, now your problem, previous member of staff unfair dismissal/injury, your problem etc.
It would be a brave individual taking on all previous events without some form of warrantly/comeback against the seller, so professional assistance is a must here.
Caveat emptor
Yes - get paid for advice
If you are purchasing all the shares in a company then what you are doing is paying money to the previous owner of the company (who will pocket it & walk away) & acquiring all the assets & liabilities of the company (whatever they may be).
You are not paying your money to the company. You may not be getting anything of value for your money.
You really do need advice from a solicitor & an accountant about this.
RM
How much are you paying ?
Agree you need both an accountant and a solictor but it is not clear from your question whether you are paying two or twenty thousand.
I would never advise a client to buy a company but there are ways of buying the assets without buying the actual company. An accountant will be able to discuss these with you and in my view it is better to see an accountant before a solicitor.
trukwala
This is a technical issue that can only be dealt with when all the circumstances of yourself ,the company and the current directors are fully known.
There is no one or simple answer.
The accountant will explore all the options but make sure that they are experienced in this sort of transaction as a wrong decision now could have long term consequences and £20 grand is a lot of money.
Good luck I hope all goes well.
Accountant
As people have said you will need an accountant and these issues are what you are paying for him to deal with.
But as people have said: If you are buying the shares in a company any money spent doesn't affect the accounts of the company. With company shares traded on a daily basis every change in ownership doesn't affect the accounts of the company, does it!
"I know if I make another company and that company buys this company for £20,000 and I'll show my investment as directors loan."
You know it wrong. Unless you mean you lend the "another company" £20,000 to buy the first company.
You are paying THE OWNER OF THE SHARES the £20,000. You are not paying the £20,000 into the company bank account. The only entry in the company books is in the share register that changes the shareholder from the seller to the buyer (you).
if you make another company
and do director loan of 20000 and that company buys the other company for 20000 . this way you can withdraw the 20000 anytime you want once the company bank has enough cash. Also as said earlier the company value dies not change if only shares are bought however there are alot if ways for the owner shareholder to choose a right course of action depending on the situation..
My 2 pence ;)
Before buying the business
Balance Sheet
Assets:
Bank 20,000
Less
Liabilities:
Director Loan (19,999)
----------------------
Net Assets 1
-----------------------
Ordinary Share 1
--------------------------
Shareholder funds 1
-------------------------
After buying the new business for £20,000 with £5000 assets
Balance sheet
Assets
Goodwill 15000
Equipments 5000
---------------------
20000
Less Liabilities
Director Loan (19,999)
------------------------
Net Assets 1
Ordinary share 1
------------------------
Shareholder funds 1
------------------------
Another Method
Balance sheet
Assets
Goodwill 15000
Equipments 5000
---------------------
20000
Ordinary share 1
Preference Shares 19999
--------------------------
Shareholder funds 20,000
--------------------------
This way the value of the company has increased
I am Trainee I am MOSTLY wrong and thats how I learn.
Shares vs Trade
I am Trainee I am MOSTLY wrong and thats how I learn.
The vendor wants to sell the shares in his company - not his trade.
Your proposal would be achievable - but you have to add the middle step of acquiring a subsidiary and stripping the assets and trade out, via a hive-up
- so I would say PARTLY wrong
With regard to the company value increasing - issuing preference shares is not preferable to holding a £19,999 loan balance that can be drawn own tax-free.
I've done this before without a solicitor and an accountant only playing a role of me asking occasional questions. There are steps you need to take in a certain order, it's not impossible if you do your research but it's a LOT of work that is easy to screw up.
The things you want to make sure you don't screw up (and this is why people say to get a solicitor and accountant) are the due diligence (you do NOT want to own a company up to its next in debt or with major problems), the contract (you need to cover your [***] - this is what solicitors are good at unless you have a solid footing in contract law yourself), and doing things like becoming a director, having the other director resign, doing the share transfer, letting HMRC know and paying the stamp duty, updating Companies House, bank mandates, potentially striking off the other company... there's a process to all of this and unless you are very interested and motivated to learn about and do it all yourself, as I was, professionals will be able to help.
Observation
When I worked for a large sized firm of chartered accountants if this sort of situation came up it was dealt with at the highest level with all sorts of check lists, due diligence and goodness knows what. It would then be submitted to a specialist for approval.
Granted the numbers were much higher but for some people £20k can be a life changing amount and it is essential that you get proper advice.
There is no one answer.
@Tosie what would you
suggest.. say everything is in order and the seller are not bothered what happens to the company whether the buyer buy the shares or the business they are only interested in receiving the £20,000. and the Buyer is only interested in the business and want to buy it via newly created company investing the purchase price as directors loan aa suggested above that can be withdrawn taxfree later on and want to desolve the old company.
Thanks..
Tax
... the seller are not bothered what happens to the company whether the buyer buy the shares or the business they are only interested in receiving the £20,000 ...
There is a big difference to the vendors, taxwise, between their company selling its business and them selling their shares in the company. I can't see how they wouldn't be "bothered" about that. In any event we are told that this is a share sale.
iamtrainee
I know what you are saying but still think op needs an accountant to explore more than one option.
And a lawyer to ensure that the vendor gives good title and provides all the appropriate warranties and indemnities.