Dividend to fund share purchase?

Can a dividend be used to fund a share buy out?

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Senior shareholder/director looking to retire and other shareholder/director has agreed to buy his share.

Can a sale be agreed but the proceeds paid for say a couple of days later? The thinking is that the then remaining sole shareholder can vote/pay a dividend to fund his purchase of the share as the company has more than sufficient funds to facilitate that, and he doesn't.

Anyone foresee any problems with that?

Many thanks

 

Replies (6)

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By Tim Vane
04th Sep 2018 10:12

Is this a wind-up?

If this is a serious question then we are reaching a new low.

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Replying to Tim Vane:
By Democratus
04th Sep 2018 10:16

I feel your pain Tim.

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Replying to Tim Vane:
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By Accountant A
04th Sep 2018 10:35

Quote:

If this is a serious question then we are reaching a new low.

Please don't issue challenges like that.

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Replying to Tim Vane:
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By Accountant A
04th Sep 2018 13:36

Quote:

If this is a serious question then we are reaching a new low.

Now see what you've done!

https://www.accountingweb.co.uk/any-answers/nominal-code-for-moving-office

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By gbuckell
04th Sep 2018 10:26

The short answer is yes, it can be done. But this leaves wide open whether the correct question has been asked. There are a number of tax issues to be addressed. Has a purchase of own shares been considered? What is the proposed consideration?

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By johngroganjga
04th Sep 2018 11:49

It’s up to the vendor if he is willing to accept the risk of deferred payment.

Apart from that, the only “problem” is that more tax than may be necessary will be paid. The purchaser pays income tax at dividend rates on withdrawing the purchase price from the company, then the vendor pays CGT on the disposal. As gbuckell says above, is a purchase of the vendor’s shares by the company not possible?

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