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Issuing new shares vs Company buying shares

Issuing new shares vs Company buying shares

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I have a client who has 3 shareholders at 33.33 percent each and one of the shareholders wants to increase the shareholding to 40 percent. The company has 3 shares of £1 each.

I would like to advise for the company to increase the share capital from 3 shares to 1000 shares and one of the shareholder to get more shares. The other two shareholders have no problems with this. All the shares will be sold at nominal value and not at a premium. I dont think this will have any CGT or other tax implications. Is there a way this can work if two of the shareholders want to be financially compensated for the dilution of the shares?

The second scenario is for the company to issue more issues to all shareholders equally so then one of the shareholder can buy the shares from other shareholders. Obviously this will have CGT implications but they can buy and sell shares only to their CGT allowance. The process may drag but they will not have to pay CGT.

The third scenario is for the company to issue more issues to all shareholders equally and then the company can buy the shares from two of the shareholders. What are the tax implications for the company and to the shareholders?

Your help will be greatly appreciated

 

 

 

Replies (4)

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By Matrix
02nd Mar 2021 20:03

What’s wrong with 10 shares? There are tax implications unless the shares really are only worth nominal value.

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By OldParkAcct
02nd Mar 2021 20:40

How about subdivide the shares into 1p shares... they then all own 100 shares and the purchaser can buy shares from the other 2 at whatever is the agreed value to get him to 40%.

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By johnhemming
03rd Mar 2021 08:29

I would think you start with what's in the Shareholders' agreement.

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By Herbacious
04th Mar 2021 09:18

To increase the number of shares you should subdivide the shares into 300 shares of £0.01 each as this does not create any issues with tax.

Alternatively you *could* issue bonus shares to all shareholders, with 99 new shares each. But these would be nil paid and the shareholders would each by liable for £99 on a winding-up. Not financially significant but it is messy.

To increase the holding of shareholder A there are a number of options.

1. Sell him 33 new shares (assuming you did the split to make 300 shares in total). This sale of shares would need to be at fair value and you'd be recommended to get an independent valuation.

2. Shareholders B and C each sell 10 shares to shareholder A. They can charge him any price they like, but it would be a disposal for CGT purposes and CGT would use fair value irrespective of the actual price paid, so again you need a valuation, ideally an independent one.

You can do your own valuation, as long as it is well documented, but it is inherently more risky.

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