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Sale of a Limited Company

Bank Account Query

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If someone offers to buy a 1 director limited company is the outgoing director allowed to take the money out of the company bank account prior to resignation or should the amount in the bank be added to the sale price? 

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22nd Jul 2019 10:38

Depends on whatever is agreed in the sale contract.

Are you the buyer, seller or just a by-stander?

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to paul.benny
22nd Jul 2019 10:46

I am the seller.

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to hackworthacc
22nd Jul 2019 10:53

The bank account belongs to the company and so is an asset being sold.

It's reasonable to use the cash in the bank to pay the company's liabilities - eg to suppliers, HMRC.

If you want to empty the bank into your pockets, that's another matter and it depends entirely on what you've agreed with the buyer. And doing so could also result in a tax liability on the company.

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22nd Jul 2019 10:59

OK. Let's say that I want 30K to sell the business lock stock and barrel and there is £20K in the bank. My selling price would be £50K ?

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to hackworthacc
22nd Jul 2019 11:04

hackworthacc wrote:

OK. Let's say that I want 30K to sell the business lock stock and barrel and there is £20K in the bank. My selling price would be £50K ?

It might be, but what selling price have you agreed with the purchaser, and what does your agreement say about the cash balance on completion?

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to hackworthacc
22nd Jul 2019 11:08

Selling the business and selling the company are slightly different things and you should make sure you understand the difference.

Whichever you end up doing, you should make sure you take legal advice and that the sale is properly documented. This should protect you from disputes after the sale is completed.

The sale price is between you and the buyer. If it is the company you are selling, it would be normal to include a provision to adjust the price according to the bank balance at the date of ale, and probably also for the movement in other assets and liabilities.

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22nd Jul 2019 11:06

Let's put it this way, you need to speak to an accountant.

I assume you have engaged a solicitor to deal with the sale agreement, etc.?

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22nd Jul 2019 11:16

This is the sort of thing where having advice is critical. Last week I (and the other shareholders) sold a company I founded in the 1980s.

We have agreed to sell the shares in the company. However, in these situations and the assumption in your case is that you are selling the shares in the company, there are a lot of complex issues and you may for example value the business on the basis of a multiple of profit (assuming you don't have to do any work), but beyond what working capital may be required any extra in the bank could be considered extra.

It is, however, clearly something where some advice is worth having. In my case the advisors were an important part of the process (I am not an accountant and I pay for advice from a firm of accountants).

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22nd Jul 2019 13:35

I assume you are also the shareholder and selling the shares rather than just the business. If the bank balance is not included in the deal then you should be liable to income tax on the distribution of the cash to you. If the agreement includes the cash and the total is below £25,000, then it could be structured to all fall to capital gains tax at 10% depending on what the company activity was. There's a whole host of other considerations so you should take advice on the tax implications.

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to Jerome_Lane
22nd Jul 2019 14:19

Why is £25,000 relevant? If the agreement includes the cash then CGT at 10% may well apply regardless of the amount (subject of course to an unlikely much higher cap) and without any special structuring.

In answer to the original question, it depends - as others have said - what the agreement says (eg re minimum cash balance required). Otherwise, whilst the individual owns the company he can do whatever he likes with the cash.

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