sale of shares

sale of shares and the costs to attribute to them.

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A small close limited company has 3 shareholders.  One shareholder holds 94 shares, the second 1 share (husband and wife) and the third 5 shares.

The husband and wife want to buy the remaining 5 shares from the third shareholder and approach him.

Are the directors /shareholders able to enter into a private agreement to buy the shares at a price agreed between them?

Profits are rather small on a smallish turnover of <£30,000.  The two remaing shareholders are asking me what price they should offer.  

Of course there are well used formulas but I am not sure I want to go down this route currently.

I am aware of the stamp duty ramifications.  Would HMRC interfere in private agreements between shareholders and try to impute their own valuations.

Assume these are a significant event to be recorded in the financial statements  when future accounts are filed?

Are there are other considerations that I should consider?

Anybody on this forum fancy doing the work with me?  Thanks.

 

Replies (7)

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By Bobbo
06th Feb 2024 15:53

davidbarry wrote:

Are the directors /shareholders able to enter into a private agreement to buy the shares at a price agreed between them?

Probably. Is there anything in the company's articles or shareholders' agreement that says otherwise?

davidbarry wrote:

Profits are rather small on a smallish turnover of <£30,000.  The two remaing shareholders are asking me what price they should offer.

How small are profits? £10,000? £1,000? £100?
5% interest in this company isn't likely to be worth much when shareholder 1 with their 94% can essentially do what they like.

davidbarry wrote:

Assume these are a significant event to be recorded in the financial statements  when future accounts are filed?

Almost certainly not.

Thanks (1)
Replying to Bobbo:
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By davidbarry
07th Feb 2024 13:43

Thank you for your reply Bobbo. Very much appreciated .

No, there is nothing in the 'company's articles or shareholders' agreement' that says otherwise.

yearly profits are less that £10,000 but more than £1,000.

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paddle steamer
By DJKL
06th Feb 2024 16:01

Main point is to beware of conflict of interest if you act for the company, the H & W and maybe also the third party shareholder.

Presume third party shareholder is not connected with couple?
Presume he/she wants to sell?

Frankly I would go through the share valuation models as appropriate (Div Yield, Earnings Yield or NAV) ,discount result very, very heavily for 5% holding, work out calculated figure is tiny and suggest to buyers (if you are acting just for them here that is) that they ought to probably up that figure to make it worthwhile for Mr/Mrs 5% to even bother selling. (Effectively they are offering a figure re his/her nuisance value rather than what shares are worth)

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By paul.benny
06th Feb 2024 16:23

Assume you mean that H+W own the 94 +1 - the OP is a touch ambiguous.

Although DJKL is right about the valuation methods, the company is so small that looks like overkill.

It sounds like whole company has negligible value. I'd offer minority holder £100. Or what they originally invested,maybe x2. As long as that is a good faith price with there is no hidden pot of gold that will leave seller feeling aggrieved.

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Replying to paul.benny:
paddle steamer
By DJKL
06th Feb 2024 17:08

I would do the comps to show how low and then offer above that to persuade a sale.

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By FactChecker
06th Feb 2024 16:55

Subject to what the Articles may have to say (about to whom shares may need to be offered in what order and possibly about valuation or even arbitration), this really all comes down to the practical element ... of what kind of values are in play.
Aspects (which can't really be disgorged here) can include not just the obvious T/O & PR but type of revenues (contracted, repeat or ad-hoc), degree of control over costs (raw materials or staffing), relevance if any of selling shareholders to gaining or servicing of clients by the business, and general cost of maintaining competitiveness.

Only if the result of all those kind of considerations ends up suggesting a valuation in at least the multiple thousands would I be remotely concerned about anything beyond whether the price was acceptable to both parties.
And even then there are terms that you can add to the sale agreement - such as one I added many years ago, along the lines of paying a further substantial premium in the unlikely event that the shares I was buying were sold for greater than twice that price in the next 4 years.

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RLI
By lionofludesch
06th Feb 2024 17:18

His shares are probably worth little more than his money back but if that's a fiver (OP doesn't say what the issue price was), he's probably not going to be tempted to sell.

So you're left with offering him a bit more than his money back until you reach a point where it's not worthwhile to offer him more.

At which point, you leave him as a shareholder and work around him.

It's going to be a subjective decision. How much are the 94+1% prepared to pay to get rid of the 5%?

Only they can answer that. Valuations are pointless.

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