issue of shares on incorporation
Partners of a partnership wish to incorporate their business (its a vets practice).
One vet is 60 and will retire at 65. The other is 45.
Partnership agreement states that a partner will retire at 65 with no consideration being payable for goodwill.
Partners are happy to change this agreement so long as the company repaid the credit DLA over the next 5 years (i.e. so that young partner was not lumbered with this debt).
As you can imagine, the income tax savings on this over the five years are great, (I calcualte £60k each over 5 years) even with a conservative valuation placed on the goodwil.
I have a slight stumbling block as to what do do with the share structure once old partner reaches 65 in 5 years time. Obviously it is key for him to "give up" his shares at that point and that is what I am struggling with.
I have considered issuing A and B shares in the company so that on a certain date old partner will be required to sell his B shares to new partner for a pre determined formula. such as net assets at balance sheet less goodwill (effectively reflecting the partnership agreement at the moment).
This could also have the additional benefit that the rights to the shares only contain the rights over one business stream, which is corrrect because the retirement of old partner will mean an end to that business stream. (young partner will likely continue on as a sole trader once old partner retires so we dont want the year 5 value to reflect a combined valuation).
I know there are some that will argue value shifting and or ERS legislation but this is the genuine commercialty of the situation. OK we are taking advantage of the goodwill situation and the effects from that but I trust that this does not mean that we still can't be commercial when it comes to the exit in 5 years time.
I am rambling on a bit here....