Client has a small two shareholder business which he is in the process of selling.
Can any one let me know how i deal with the fact the the shareholder has loaned money to the company which has not been repaid.
If the buyer pays say £25k for the shares in the business how does the director get his loan back?
I'm looking to minimise the amount of Capital gains tax that he pays.
any help would be appreciated
Janette Dalgliesh
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Should be part of contract
Hopefully the vendor has the services of a solicitor to advise on the contract / sale agreement.
I would expect the contract to specify that the directors' loan accounts be repaid on completion by the limited company. The repayment of the loans at face value should be tax-free. There might be a cashflow issue with the Ltd Co in this respect, usually addressed in such circumstances by the new shareholders/directors injecting funds into the Ltd Co or the Ltd Co seeking commercial finance. In some circumstances the repayment of the directors' loan might be scheduled over a period of months or years, subject to personal guarantees of the new shareholders / directors.
Assuming that the company is worth the £25k being talked about there should be no question about NOT repaying existing directors' loans.
By "worth" I mean net assets + goodwill.
If the new owner thinks that the directors'loans will NOT be repaid then the vendors need to reconsider their position, is it worth selling ?
It's usually the purchaser
The purchaser will be paying a price based on the net assets of the company which reflect creditors such as a director/shareholder's loan account. Most of the sale share agreements I have seen stipulate that the company (under new ownership) will repay the loan within, say, 48 hours of completion (transfer of shares).