I've got a client who has run a limited company for the past two years; initially there were two directors/shareholders now there is just him as the sole director and shareholder.
The company is solvent but its net assets are worth no more than around £5k. The director has 1000 shares of 10p each making up the £100 nominal issued share capital of the business. His parents want to invest £20k into the business - in return for 20 shares (ie at £1k each). This seems to end up causing more issues than its worth so I've suggested just lending their Son the money but they want to have the shares. Can they purchase 20 shares at that valuation (despite the fact that they're obviously not worth that much) or does this disparity open a whole can of worms?
Any assistance gratefully received thanks as not come across quite this scenario in the past!
Replies (22)
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If they want to buy shares worth £1 for £10m there's nothing to stop them doing so. But fools and their money ...
Talking of fools, why on earth would you think that lending to the son is a good idea?
Well, please say what you mean. It makes the analysis so much easier. Although the son may not understand that he and his company are separate legal entities I do hope that you appreciate the distinction.
In which case you have my sympathy. I don't suffer directly, but my husband does (and, as a consequence, so do I).
Yes you can pay what you like, but there must be more to this than is apparant from the original post.
Why were there more issues than it was worth? A proper class of share issue could settle most issues: assuming control, dividend rights or conversion / redemption to be the main ones.
Tax? - way outside my field.
The only tax issue I can think about is might overpaying for shares be considered a gift by the patents for IHT purposes? Someone better versed might comment.
Other than that struggling to see any real issues, then again not really thought it through and by 4.00 p.m. my brain tends to be fried, certainly today it is, it has been a good day but a long day.
I'm struggling to find the letters t, a and x - in that order - anywhere in the question.
Not surprising as it is not in the question. Then again it is in the post by Democratus to which I was replying.
No idea now why I said tax, but there must be implications and as I said way outside my area.
Apologies for overcomplicating it. Mea culpa.
What you haven't said is whether they intend to buy the shares from the son or for the company to issue new shares.
The company issuing new shares is the easy one, there will just be a large share premium account.
I agree with DJKL, there would be inheritance implications if they bought the shares off the son for this amount unless there is some underlying reason why the shares could be worth that much.
The purchase would be classed as a PET, but provided there are no other PET or CLT's in play then there is no issue there.
The only issue that may arise is that losses for CGT may be restricted. If there were to sell the shares at a loss or make a negligible value claim the loss would only be available to be used for gains arising from transactions with the same connected person.