Sale of 50% share in own company to employee..

Sale of 50% share in own company to employee what to consider

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Hey guy

I am helping this client to transfer his 50% share in the company [grocery shop] that has £4,000 net assets with £37k director loan.

The client wants to sell his 50% share to his Manager.

The business is valued at £60,000, that was bought for £40,000 couple of years ago.

The client will receive £30,000 for 50%

I have experince with sole trader businesses i.e just to deal with capital gain implications of the individuals and partnerships but not with ltd copanies.

My questions;

When shares are transfered on companies house website, 0.5% stamp duty is to be paid and capital gain is paid on shares sale too?

Can the company just issue another equal amount of shares to the Manager for 30k and paid back as director loan?

If there is any guindence please share the link I don't mind reading.

I admit I have never done it before so any constructve input is much appriciated and I will consult with another accountant with experience when needed.

Thanks

 

 

 

Replies (17)

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By Matrix
21st Oct 2018 13:10

Does the company owe your client 37k and he is being paid £30k?

Share transfers do not go to Companies House but you are right the form needs to be stamped. You need to make sure you understand what has been agreed commercially first.

If the gain is £10k then it falls within the annual exemption.

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By Ruddles
21st Oct 2018 13:43

oldiegoldy wrote:
I will consult with another accountant with experience when needed.

I would suggest that time is now.
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By Marion Hayes
21st Oct 2018 14:24

An individual is paying another individual to buy some shares. He is liable to CGT in the usual way. There is no impact on the Company. It still owes the shareholder 37K, or the shareholder still owes the company.
Manager pays Stamp Duty on purchase.
Sale of employment related securities will need to be reported by the Company.

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Replying to Marion Hayes:
By Ruddles
21st Oct 2018 14:31

Marion Hayes wrote:

Sale of employment related securities will need to be reported by the Company.

Possibly.

It is more likely that an acquisition will need to be reported.

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RLI
By lionofludesch
21st Oct 2018 16:16

What happens to the loan is crucial. It's mentioned - and yet is irrelevant if the transaction is merely the sale of a 50% holiding for £30000.

I'm struggling to understand the commercial basis of this sale.

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By SteveHa
22nd Oct 2018 08:12

Transactions in securities legislation may also be triggered.

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By oldiegoldy
22nd Oct 2018 11:36

Thanks guys for your input.
I need to clarify a few things.
The manager is working in the shop and there was no deal or share promises etc. it just happened to the manager wants to buy half share in the company. [[ so I don't think any employment securities legislations applies.???]]
There is 37k loan to the director and he wants extract this 30k paid by the from new investor. With share transfer only the loan position remains the same!!

I have been reading on the issue and my findings are
to allot and issue new shares to the investor.
https://www.accountingweb.co.uk/any-answers/share-capital-11

I trying to get as much information.
thanks

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Replying to oldiegoldy:
RLI
By lionofludesch
22nd Oct 2018 11:44

oldiegoldy wrote:

There is 37k loan to the director and he wants extract this 30k paid by the from new investor.

Extract ? Extract from whom ? They're his shares and it's his £30k.

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Replying to oldiegoldy:
By Ruddles
22nd Oct 2018 11:55

oldiegoldy wrote:

The manager is working in the shop and there was no deal or share promises etc. it just happened to the manager wants to buy half share in the company. [[ so I don't think any employment securities legislations applies.???]]

Oh dear
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Replying to Ruddles:
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By oldiegoldy
22nd Oct 2018 15:09

Looks like you know what needs to be done. Would you be assist me in this matter as a specialist, expenses paid obviously. and I will learn something from you too.

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By David Heaton
22nd Oct 2018 14:58

A 50% interest in a company worth £60,000, of which £56,000 is apparently goodwill, is not worth £30,000, neither in the real world nor in the odd world of fiscal valuation (for employment-related securities purposes).

The potential vendor already owns the whole company AND the debt due by the company of £37,000, so you could say his assets are nominally £97,000. And he's selling half the shares and redeeming most of the loan for only £30,000, leaving him with half the shares (say £30,000 of value for simplicity) and £7,000 of loan?

The shareholder, manager, and you, should probably take some advice.

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Replying to David Heaton:
By Ruddles
22nd Oct 2018 15:24

David Heaton wrote:
A 50% interest in a company worth £60,000, of which £56,000 is apparently goodwill, is not worth £30,000,

Agreed, but it does give rise to a bit of a conunudrum. If the buyer wants to pay £30k, and the seller is happy with that figure, then £30k it is. There should be no implications for the buyer since, if anything, he has paid more than market value.

By definition, therefore, the seller has sold something for more than market value - or has he? I appreciate that the concept of a reduction in value is typically used for IHT purposes, but it has also been seen in ERS cases. Here the value of the seller's shareholding is (we are told) £60k. After the sale, his interest might be worth, say, £20k. So, he has sold something that is worth (to him) £40k for only £30k?

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Replying to Ruddles:
RLI
By lionofludesch
22nd Oct 2018 15:45

It's going to be hard to show that a holding has been sold at an under or over value if an unrelated party has decided to pay £30000. HMRC are likely to accept that it's the real value.

Obviously, if this employee turns out to be related i some way, all bets are off.

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Replying to lionofludesch:
Portia profile image
By Portia Nina Levin
22nd Oct 2018 15:49

Eh? Might they not have got it cheaper because they are an employee (ie as an emolument)? ERS/s 62 and TCGA 92 imagine they might.

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Replying to Portia Nina Levin:
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By lionofludesch
22nd Oct 2018 15:53

Suppose it's possible.

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Portia profile image
By Portia Nina Levin
22nd Oct 2018 15:06

The OP is reminiscent of those people you see (briefly) when you visit the seaside; out in the ocean, having a good time, madly flapping their arms around, until they suddenly disappear from view.

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By Duggimon
22nd Oct 2018 15:33

You need to be clearer in the positions before and after the sale.

Who owns what shares just now?
Who will own what shares after the sale?
What will be the balance on the loan after the sale?
What will happen with the loan balance?

I can't tell from what's posted so far whether your client is going to receive £67,000, £0, or something in between.

You haven't really addressed enough of the specifics to determine what other legislation applies either.

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