Selling LTD company to new owner accounting

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Company A has one shareholder (100%) is selling complete business. New owner is purchasing and taking over for sum of £30k.

Company has assets worth £5k and liability DLA of £10k

New owner pays £30k into old owner’s private bank.

Old owner pays CGT. No entries are made in the accounts of the company to reflect the £30k.

Companies House is updated with new shareholder.

New owner takes benefit of DLA.

Company carries on trading with new owner.

Is this correct?

Replies (26)

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By johngroganjga
30th Nov 2023 19:43

You say in your first sentence that the company is selling its business. The sequence of events in the following sentences is that the shareholder is selling his shares in the company. Which is it?

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Replying to johngroganjga:
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By Jongreener
30th Nov 2023 20:17

Selling shares

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By Ruddles
30th Nov 2023 20:00

It might be correct - depends on what the paperwork says.

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Replying to Ruddles:
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By Jongreener
30th Nov 2023 20:16

Thanks

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Replying to Jongreener:
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By More unearned luck
30th Nov 2023 21:55

Shouldn't the paperwork for the assignment of debt (and the sale of the shares) consist of more than the single word 'Thanks'?

How much stamp duty was paid?

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By Jongreener
30th Nov 2023 20:16

Thanks for the reply, i didnt expect a rapid response.

I should have worded it better. With regards to selling shares. Is the stated method corrent?

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Replying to Jongreener:
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By Tax Dragon
30th Nov 2023 20:43

It's a weird question.

And one of the (many) situations where there could very easily be CGT on the debt, notwithstanding that Justin has never come across it before.

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Replying to Tax Dragon:
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By Justin Bryant
01st Dec 2023 09:08

Well, if you come across it all the time you're clearly doing/thinking something wrong!

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Replying to Justin Bryant:
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By Tax Dragon
01st Dec 2023 09:40

Oh look, my pet troll is here.

I answered that point on the other thread.

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Replying to Justin Bryant:
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By Jongreener
01st Dec 2023 09:41

I dont understand how you have come up with that conclusion. If you think something is wrong id appreciate clarification so i can rectify it. The whole point of asking here is for correct guidence so "something wrong" can be avoided.

The deal is as stated above nothing more nothing hidden. My focus is on the shareholder selling not the buyer.

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Replying to Jongreener:
RLI
By lionofludesch
01st Dec 2023 07:26

Jongreener wrote:

Thanks for the reply, i didnt expect a rapid response.

I should have worded it better. With regards to selling shares. Is the stated method corrent?

Maybe. But if it is, the vendor has received £30k in cash and £10k in loan waiver so the sale price is £40k.

Which is why everyone is asking what the deal is.

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Replying to lionofludesch:
By Ruddles
01st Dec 2023 08:13

Except that the DLA was in credit so the effective consideration is only £20k

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Replying to Ruddles:
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By Tax Dragon
01st Dec 2023 08:19

And I'm not sure anyone is really asking what the deal is.

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Replying to Tax Dragon:
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By paul.benny
01st Dec 2023 09:24

I am.

If Buyer is paying £30k to Seller, that doesn't of itself clear the DLA. Buyer should be paying £20k and Company £10k to Seller.

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Replying to Ruddles:
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By Jongreener
01st Dec 2023 08:57

Thank you, i really appreciate everyones inputs. The DLA is not overdrawn the company owes this to the original shareholder.

I will be deducting the DLA from the gain in CGT since this was cash used to setup the company. Thus net gain of £20k.

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Replying to Jongreener:
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By Tax Dragon
01st Dec 2023 09:37

You're acting for the seller?

Buyer is hopefully taking advice too.

"Since this was cash used to setup the company" is not enough to deduct that amount from the proceeds. The paperwork has to support that. Which I thought was the point people were making (but maybe after all they were instead asking about what was happening).

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Replying to Jongreener:
By Ruddles
01st Dec 2023 11:17

Jongreener wrote:
I will be deducting the DLA from the gain in CGT since this was cash used to setup the company. Thus net gain of £20k.

Whoa, there. You might be correct in doing so, but not for that reason - as TD says, the transaction paperwork will need to support that treatment.
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Replying to Jongreener:
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By More unearned luck
01st Dec 2023 11:22

"I will be deducting the DLA from the gain in CGT since this was cash used to setup the company. Thus net gain of £20k."

Before you do that I suggest you check with the purchaser what consideration was entered on the STF and what SD was paid.

But is there really no written contract?

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Replying to Jongreener:
RLI
By lionofludesch
01st Dec 2023 15:30

Jongreener wrote:

Thank you, i really appreciate everyones inputs. The DLA is not overdrawn the company owes this to the original shareholder.

I will be deducting the DLA from the gain in CGT since this was cash used to setup the company. Thus net gain of £20k.

The company needs some evidence that the loan was repaid. So get the buyer to pay £10000 into the company, then get the company to pay the vendor £10000.

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By Tasnim Mustafa
01st Dec 2023 14:13

Don't forget stamp duty on the £30k sale of shares

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Replying to TasnimMustafa:
By Ruddles
01st Dec 2023 14:30

Or possibly £20k sale of shares. We are all still guessing.

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Replying to Ruddles:
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By Tax Dragon
01st Dec 2023 14:46

Carry on guessing if you want to - as so many other numbers are possible (although it's unlikely to be less than zero or more than 30k), I'm out of this guessing game. In fact, I'm out altogether.

Before exiting, I would observe that, given the apparent lack of paperwork and seeming unawareness that there even were two assets to sell and buy, transfer of ownership of both those assets may not have been achieved.

(Hasn't everything in this thread been discussed in here before? And, as here, everyone was left guessing as to what had actually happened.)

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Replying to TasnimMustafa:
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By More unearned luck
01st Dec 2023 14:48

It seems the OP is representing the vendor - only I trust. If so SD is not a matter for him and his client other than to check that vendor and buyer provide consistent and correct facts to HMRC.

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Replying to More unearned luck:
By Ruddles
01st Dec 2023 14:59

More unearned luck wrote:

It seems the OP is representing the vendor - only I trust. If so SD is not a matter for him and his client.


Not necessarily, although I would agree that is the likely position. Yet again it depends on what (if anything) was agreed. Although it is customary for the purchaser to settle the Stamp Duty liability there is no legislation that says so.
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By Jongreener
03rd Dec 2023 20:19

I want to thank you all, i really apprecate your responses.

One thing I overlooked was the Stock Transfer Form assuming this was handled by the buyer, however I now know the seller must fill it in and sign it and hand it over to the buyer with the share certificate.

I will in future transfers request a sale agreement detailing everything.

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By Calculatorboy
04th Dec 2023 18:19

It doesn't affect the company's accounts at all, but you need to register change of shareholdings and the PSC nonsense at companies house ....obviously there are other legal matters in respect of the transfer of shares

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