My client (say X) of mine has been running a successful construction company for the past 10 years.
His latest balance sheet shows a net worth of £150K
He want to go into a partnership with another individual (say Y) who will add value to his business by bringing in large contracts through his past experience and contacts in the construction industry.
They have a basic agreement, where the Y will deposit £35K into the business and effectively, my client X will also have contributed £35K from his net value of £150K. My client X will transfer 50% of the shares to Y, but there will also be an agreement in place where by, my client X's balance of £115K (£150K - £35K) will be protected should they decide to end the partnership in the future.
How would this work?
How should the £35K contribution into the company be shown? It certainly isnt a loan to the company. My opinion would be is that it would credited to X's DCA.
If my client selling his 50% shareholding for £35K, he will certainly have a CGT liability although he will qualify for Entrepreneurs' Relief.
My question is: what's the best way to structure this deal?
Thanks
Replies (4)
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Actually set up a partnership?
If they are transferring a 50% shareholding, then they are not going into partnership. They are going to operate through a company that is jointly owned by them. The £150k in the company already is only X's as long as he holds all the shares (and even then at a step removed). If he gives up 50% of the shares then he gives up 50% of the rights to net company assets. I struggle to see how this could legally be prevented and I am intrigued as to why you seem to consider X "protecting" this initial value as a minor detail.
Either set up a new company for the joint venture or set up an actual partnership instead. This route is likely to lose X a lot of money if they fall out.
I suppose you could issue Y with a new class of shares ranking pari passu with the existing shares except that they do not participate in the first £150,000 in the event of wind up.
I agree that they just need a new company to conduct their joint venture through. It all becomes much simpler then.