Hi all - I hope you can help...
I have a new company with two directors. Both assume they are also shareholders (there are two shares issued at £1 each) - however one is not (I know the reasons behind this and it is an admin error) and in fact have both declared a "dividend" recently - which of course one cannot be.
I will be approaching them to discuss this and know that they will want 1 of the 2 issued shares to be bought by the 2nd director.
My question is what are the financial implications for each director personally? I know from a company point of view it makes little difference, but personally what happens to Director A who sells the share and Director B who buys it (I know they will want to do this for a nominal £1 if possible).
Thank you in advance for your comments
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Replies (14)
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If it's an administrative error, there is in substance no transfer of beneficial ownership, only a correction of the error. So what was the error?
Thanks Both - It is not a new company - 3 years of trading.
Can the error be corrected back that far?
Sorry - the two shares are in the name of just the one director, they had assumed they had one each.
The clients didn't have an accountant/advisor and assumed being a director was the same as being an owner.
I haven't got to that yet, I am assuming it was the director who owns the shares. I wanted to get it straight in my head before I raised this with them.
I assume worst case is that the notional gain to the director buying the share will become taxable as he is also a director on the payroll?
Yes you have a potential employment rated securities problem.
It is a shame that they acted without using an adviser. Had they instructed an adviser to set up a company with them holding shares 50:50, and the adviser had not listened and set it up with a sole shareholder, and then dealt with the annual returns etc. himself, thus leaving the two directors in blissful ignorance of the true position, that would be one thing. It would all be the adviser's fault, and it would just be a matter of correcting the adviser's unfortunate error.
But here you have a holder of a subscriber share who sat down one day to issue a further share. Having done so he sat down at a later date when the next annual return came to be completed and it fell to him to enter the name of the person to whom that new share had been issued in the box on the form provided for that purpose. What is his explanation for getting it so disastrously wrong?
B shares
Could the company issue a new class of B shares with only 2 issued with exactly the same rights as the current shares. Then the ownership would remain at 50:50? This would presumably solve the problem going forward.
There would still be the previously paid "dividend" - could this be treated as a directors loan? If not, the total would have to be treated as all being paid to director A or the amount to B would have to be salary.
Thank you all for your help - It is as I had feared a potential tax liability and therefor not to easy to fix. They are not going to like our next meeting....
Update..
So it turns out they did have an advisor - just for the setting up of the company - paid a one off fee for the task - and they specifically stated both to own the company.
In this situation is it a case of retaining all of the information (they are digging out emails for backup) of the advisers error and then just correcting the shareholding on the Annual return?
Thanks again!
I think it's called an RP04 form but maybe call companies house to explain the situation including the fact you have original board minutes and they should be able to confirm