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Passing on a trading company to employee

Best way?

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I have a consultancy Ltd company that operates in an uncertain industry, and profit fluctuates. Last year profit £120k, prev year £70k, prev year £30k loss. 

The director is in his 60's and wants to retire, and pass the goodwill of the company to his employee for nothing. I'm not sure if that's do-able so they may mutally agree to say £50k. The Net Assets are £200k bank balance. He just wants out and for the employee to continue his legacy. 

I'm conscious of Employment Related Securities. Is the 'normal' situation here simply to get the business valued, and shares sold to employee at MV? I've suggested employee sets up a newco, and that company purchases the shares, so at least he'll have a DLA to draw down on. The Net Asset proportion could be structured as a dividend up to newco, then paid out to exiting shareholder. So the employee would need to raise funds for the goodwill element only. Would that work?

Other option is MVL, and employee's newco purchases the goodwill from liquidator at an agreed valuation. This probably seems the cleanest option to me providing exiting guy is conscious of TAAR. Problem is if exiting guy wants to continue as a freelancer or held a non-exec position etc.

I've tried asking for help from my tax advice line, but they're no help. Anyone know the best way of doing this, and if there is any help out there? How would you structure it?

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22nd Mar 2019 12:04

Who are you advising? The company, the owner or the employee?

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to Tim Vane
22nd Mar 2019 14:26

The company and the owner formally, however the employee wishes to use me going forwards in & doesn't want to seek separate legal/accounting advice

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to fellowcraft
22nd Mar 2019 15:52

fellowcraft wrote:

The company and the owner formally, however the employee wishes to use me going forwards in & doesn't want to seek separate legal/accounting advice

I don't know what your professional body says on the subject but I can't see how that doesn't give you a massive conflict of interests. As "the employee wishes to use me going forwards" you could be accused of favouring his interests over your (soon to be) former client.

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to Accountant A
22nd Mar 2019 16:34

Accountant A wrote:

fellowcraft wrote:

The company and the owner formally, however the employee wishes to use me going forwards in & doesn't want to seek separate legal/accounting advice

I don't know what your professional body says on the subject but I can't see how that doesn't give you a massive conflict of interests. As "the employee wishes to use me going forwards" you could be accused of favouring his interests over your (soon to be) former client.

I agree in principle, but in the real world ... if you make a stance at the get-go and say you’ll be unbiased and factual, then (hopefully) both parties will respect that.
Give them (separately) their relevant facts but stay neutral. It’s not your job to do the negotiations.
When I’ve done something similar in the past, to each party I’ve given the advice “X is best for you as the seller/buyer. FYI, in general, Y is best for a buyer/seller”. Just make sure the Y is a generic Y, not tailored to your knowledge of the other party. Then stand back and let them agree something.

It’s a fine line and you may need to be strong to stay on the fence.

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to atleastisoundknowledgable...
22nd Mar 2019 16:50

atleastisoundknowledgable... wrote:

Then stand back and let them agree something.

I suspect they would both be better to have proper independent professional advice as you are always going to be in the wrong if one of them isn't happy.

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to fellowcraft
22nd Mar 2019 16:24

I agree with the above. Act for one party only, and ensure that whichever party you act for gets sound legal advice on whatever happens with the deal. There are too many ways that this can go sour, however informal and friendly it initially seems to be.

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to Tim Vane
22nd Mar 2019 16:51

Thanks guys..now back to to the question...

A. MVL
B. NewCo buys shares
C. NewCo buys Goodwill from OldCo

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to Tim Vane
22nd Mar 2019 16:58

Presumably TAAR restrictions wont apply if A sells shares to B Limited as there is no winding up. But does TIS then come into play?

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22nd Mar 2019 17:28

Let me get this straight. A client has said he wants to sell shares at net asset value to an employee to keep the company going. You've suggested instead that they liquidate the company.

Are you speaking the same language as them? Sit down with them- together and individually - to find out what each wants. Then think about whether you are conflicted. Then (and only then) think about the tax - but base it on the objectives, not some random alternatives you've come up with.

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By Matrix
22nd Mar 2019 18:38

How much does he want for the company and does the employee have the money to pay? They need to set out the commercial terms first, whether asset sale or share sale and then you advise on the tax, but there would only be income tax under ERS if the amount paid for the shares is below market value.

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