One of the shareholder/directors of a 50:50 owned company is looking to formalise an exit strategy over the next three or so years. The shareholders are unconnected, one director (A) is an entrepreneurial type and is looking to grow the company whilst the other, director B, is more risk averse and is in the opinion of A "holding the company back". There is no big fallout, and things are still very amicable between the two, just differing opinions on the way forward. As B is looking to retire in the next few (max 5) years they are now considering an exit strategy for him, in as short a period as possible. If the company is to move forward as A wants it to, B does not want the responsibility of shareholding/directorship - he is not averse to continuing as an employee if necessary.
Here are the facts given to me so far:
A will not buy out B - his reasoning being that he would have to earn at least twice the amount of the value of the shares to pay for them (as a 50% tax payer) and he does not have the funds readily available to do this.
A does not want to work with a third party, so selling to a third party is out.
As far as I see it, this leaves the possibility of the company buying back B's shares.
B wants to clear £1m after CGT and any other costs. His disposal would, I believe, qualify for Entrepreneurs Relief, so lets assume he needs to sell his shares for £1.2m to net £1m. This is not far out valuation wise as a third party offered £2.25m for 80% of the company's shares last month (deal was not right for them apparently).
The company has approximately £300k in retained profits and generates on average approximately £600k net profit, before directors salaries and dividends. The company would most likley be able to borrow funds, from a bank, in excess of £1.5m.
They are looking to structure a deal over 3 years for B to dispose of his shares and net £1m, they are both aware of the risks of doing this in terms of, for example, the company being worth £1 in 3 years or the company being worth £1bn in 3 years.
I have a fair knowledge of a company buying back its own shares, in simple situations, however there seem to be too many pitfalls and obstacles to make this 'simple'.
I am therefore just looking for some pointers and/or strategies as to what is "do-able" and what is not or whether a sale to director A would be possible given the above - I am looking at this for the company as opposed to either director individually.
Apologies for the long post and any comments or pointers would be very gratefully received.
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