I am dealing with a company with 2 directors; one of whom is 100% shareholder too. The shareholder wants an exit from the business and the other director will become sole shareholder. However there are few complications
1. The shares have been valued at £500k with each share being worth £5k. The new shareholder does not have means to finance whole acquisition
2. The departing shareholder has director loan account in the region of £400k. He again does not have means to settle this
The departing shareholder is proposing the company buyback 80 shares and cancels them against overdrawn director loan account. The remaining 20 shares will then be bought by the other individual. The directors are not connected.
Whilst the treatment of proceeds from sales of 20 shares for departing shareholder is clear with ER being applicable, there is some uncertainty whether the BuyBack of 80 shares by the company will qualify him for Capital treatment. This is because the settlement for these shares is by way of clearing already overdrawn director loan account. Clearance will be obtained from HMRC but need to make sure this is something that will work.
Also is there likely to be an issue if the shares are disposed off by combination of buyback and sale. There is no way the new shareholder will be able to finance the whole acquisition and current shareholder wants an exit from the business.
I shall be grateful for any thoughts.