How to hand business to primary investor

Using investor funds for property development then handing the properties to the investor

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My accountant does a great job, but i think this will challenge even him. I use investor finance (£450k) to buy a commercial unit. My ltd co lends from banks for development finance (£300k). Contract out builders work and claim the last 5% VAT through the SPV. I sell a few units, take my profit,  and leave the last few units for the investor, who already has several businesses. It feels like I should be able to do better than just repaying him his money and then he buys the units from the company. It can feel somethings missing, but i dont know what? 

Cheers

AllanWads.

Replies (10)

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By Accountant A
04th Feb 2018 19:02

I feel I'm missing something too. What are you on about?

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By johngroganjga
04th Feb 2018 22:09

You need to explain what the agreement between you and the investor is about how to share the profits.

And presumably what your company does with money from the bank is “borrow” it.

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By kaff
04th Feb 2018 21:11

On what basis will the banks lend the company monies for development finance, if the units are held by you personally rather than by the company? Or is that not what you actually mean?

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RLI
By lionofludesch
05th Feb 2018 09:17

What's missing is a clear explanation.

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Replying to lionofludesch:
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By allanWads
05th Feb 2018 10:00

Sorry all,
currently i buy and sell property using my ltd company. investors lend me finance covered by personal promissory notes.. I loan that to the company as a directors loan. The company now loans development finance from the bank , with debentures, charge on the property etc. I use another building company to do the day to day stuff and invoice me bi weekly, my company reclaims the remaining 5% VAT . I then sell the units, take profit- normally around £50k. I do at one deal per year but working towards two this year.. Profit is split into pension, expenses and small income. At this point i repay my directors loan with interest, and use that to repay the investors.
BUT this investor wants to own some of the units instead of being repaid . I cannot figure out how to do that as its the directors money in the company? The company trades property so how can it take rents instead?
Thanks to all for replies.
Allan

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Replying to allanWads:
By johngroganjga
05th Feb 2018 10:09

Do you mean that the investors want to take a charge over the company's assets to secure their loan to you?

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Replying to johngroganjga:
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By allanWads
05th Feb 2018 15:54

Nop not a charge over the assets. its mre fundamental than that.
It is an offPlan purchase (he prepays £450k) for 3 of the 6 flats.. When built 3 will be worth £450k to £500K. How i fund and do the 6 flats is up to me. Currently my company trades property. When built it sells all its stock. I dont rent it out via that company so i dont know how to structure this. I see mega potential TAX challenge. - Naturally once the finance is designed right i will get a solicitor to do the agreement. I just dont know what company (or private)structure, especially regarding TAX ation?
Perhaps i should look at anything to do with Accounting for OffPlan purchases?
Ta.
Allan

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Replying to allanWads:
RLI
By lionofludesch
05th Feb 2018 10:17

allanWads wrote:

Sorry all,
currently i buy and sell property using my ltd company. investors lend me finance covered by personal promissory notes.. I loan that to the company as a directors loan. The company now loans development finance from the bank , with debentures, charge on the property etc. I use another building company to do the day to day stuff and invoice me bi weekly, my company reclaims the remaining 5% VAT . I then sell the units, take profit- normally around £50k. I do at one deal per year but working towards two this year.. Profit is split into pension, expenses and small income. At this point i repay my directors loan with interest, and use that to repay the investors.
BUT this investor wants to own some of the units instead of being repaid . I cannot figure out how to do that as its the directors money in the company? The company trades property so how can it take rents instead?
Thanks to all for replies.
Allan

In effect, the company is selling the asset to the investor, isn't it ? The price being whatever you personally borrowed from him (+ interest, though that's a bit of a red herring).

So you repay the money to the company instead of the investor.

Nothing else changes.

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By thomas34
05th Feb 2018 09:41

Must agree that your accountant will be challenged by that summary.

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paddle steamer
By DJKL
05th Feb 2018 16:23

Given SDLT/ vat and other taxes I think I might be taking a long look at structuring ownership through a partnership/LLP/ stand alone company /similar rather than using your existing company- in effect an SPV.

Your post mentions SPV but then talks about your existing company "lends" from banks (presume means borrows) which makes things less clear.

Also not sure what happens re vat, what are you building and what is investor going to do with his "share"; sell them or lease them?

What is possible will depend on lenders and investors and whether you/they are willing to run in a partnership/JV manner rather than having investor as a mere lender to you. (as individual or company?)

What I would do is follow the money (value), tabulate what the numbers are likely to be (desktop) and who is to get what, once you have that you hopefully can see how it may be structured to mitigate frictional costs, though from experience banks/lenders etc want their safety/security over tax efficiency, so may not play ball.

Good luck.

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