I've searched high and low for an answer and can't find anything that refers specifically to the following so I hope someone here has come across this scenerio and steer me in the right direction.
A sole director wishes to include the his private cleaning company into his limited co. He believes the valuation is £30k which is 75% of the turnover. I have no idea whether this is correct - looking at similar business for sale it looks reasonable some are being sold 1:1 some less. The purchase would be goodwill. He doesn't have funds in the business to make a purchase so wants to issue shares and allocate them to himself.
He is keen this doesn't impact on his companies credit rating.
Can you see any pitfalls in doing this?
Replies (4)
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"pitfalls?"
Several dozen.
Speak to an accountant about this. Its pretty routine stuff but needs to be handled properly, if you try and struggle through (I assume you are their bookkeeper?) you simply don't do it like this which is probably why you cant find out much about it. Generally you will need to sell the assets in and leave the balance on the DL account but it all needs doing properly and you will need to consider all the taxes (ie in his hands, in the company etc) and get clearance from HMRC for the valuation. Not a DIY job.
What;s wrong!
Shares can be issued but the valuation may still need to be ascertained.
There are formalities involved especially if the company was incorprated under any pre 2006 Companies Act.
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Its not a question of being *wrong* its a question of whether its sensible, which generally its not. But yes he could do it.