Person A was a founder shareholder in the start up of a small company in food manufacture. Other members of his family also participated. A was also company secretary and a director. The company became short of cash because of expansion as a result of which an outside interest, B, purchased a minority shareholding. Eventually, in 2008, B, by injecting further cash gained control. However, the company still needed cash and in 2009 there was a further rights issue in which B was the sole subscriber, the family members, including A, not having the funds to claim their rights. At the same time B required A to resign as both director and company secretary and changed the relationship between B and the family with a new shareholders agreement. These events had the effect of reducing the value of A's shares quite considerably.
At this point A started negotiations between himself and B for B to buy all his shares. These negotiations finally concluded in February 2011 when A sold his shares to B and generated a CGT liability of just over £90,000. A wants to know if he can claim ER. He qualifies for this (e.g more than 5% holding) except in one respect in that he resigned his posts before the deal was concluded.
Can anyone see a way round this. Can A claim that the rights issue/ shareholders agreement, resignation was all part of an associated transaction ?
Replies (2)
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I would say not
But I'll be happy for someone to prove me wrong. Golden rule - never resign as director etc before selling shares.
Any way of arguing that he remained an employee despite having resigned as director?
I agree - the conditions are:-
i. 5% shareholding AND
ii. Officer for employee
AT TIME of dispsoal
the comany also needs to be a trading comany - but that is not the issue here!