buyout of a shareholder

buyout of a shareholder

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I have a client LTD company that has 2 shareholders with a 50 50 stake. One of the shareholders would like to buy out the other one.

Can the consideration be paid via the company bank account as the shareholder who wants to leave will invoice the company through his own LTD company for time spent over last few months? This is a genuine expense as time has been spent.

Or does the consideration need to be paid not through the company bank account and it has to be a private transfer of funds?

I suppose both shareholders can also take dividends out the business also

Would like some advice on best course of action please

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By johngroganjga
04th Jan 2014 20:32

You need to decide whether the company is purchasing the shares or whether the purchase is being made by the other shareholder. If the former, then obviously the company pays. Otherwise the shareholder himself pays, and if he borrows from the company to do so there may well be tax consequences.

Yes the company can pay dividends to its shareholders - provided of course that it has profits out of which they can be paid.

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By Julian Stafford
05th Jan 2014 11:19

Lots of ways of doing this

You should take some proper advice on this but the two main possibilities are a purchase of own shares by the company or a re-organisation.

If the company can satisfy the relevant conditions, the buy-back will result in CGT treatment for the vendor.

If the conditions cannot be satisfied you might want to consider the continuing shareholder forming a new company "Newco". This company would acquire the existing company "A" from the two shareholders and A would become a subsidiary of Newco. Newco would satisfy the purchase consideration by issuing shares to the continuing shareholder and loan stock to the departing shareholder. (i.e. the continuing shareholder would now own 100% of the shares in the group). The loan stock could be repaid over a period of time using money generated by the trading company and transferred up via dividends.

This is a simplistic overview of what is required. There are various things to consider such as Company Law considerations and HMRC clearance applications. As I said, proper advice is required.

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