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share classes and dividends

share classes and dividends

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Private company with only one issued share wants to sell 10% of business to an emloyee.

Is the best way to achieve to allot 8 more shares to current shareholder, create a new share class (B Shares) and issue 1 of those also to the current shareholder.
Then, in a months time when the employee has the money, transfer the one B Share to the employee witht he proceeds going to the other shareholder and creating a capital gain that will be just below his annual exempt amount.

Am I right in thinking that by doing this the two shareholders can be voted dividends seperately?

Are there any potential pitfalls?
NH

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27th May 2009 16:44

Yes
The company is still required to file form 42 as the 'responsible person'.

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By nig24
22nd May 2009 12:51

form 42?
Is a form 42 necessary as he is buying the shares from an individual. They just happen to be shares in the company he works for?

As for the valuation, this has not yet been carried out but a preliminary figure of £10,000 has been mentioned which of course would be very close to the annual exemption. Maybe the final agreed figure will be slightly over the exemption.

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By Anonymous
22nd May 2009 08:55

Possibly.....
Firstly, the issue of new shares to current shareholder - fine. Just ensure all relevant minutes, resolutions for reclassification of autrhorised shares are done correctly.

Tfr of share to employee - the key issue is the value of the company. You say that the share tfr will be "just below the annual exempt amount" - convenient!. On the grounds that the employee will be receiving the shares by reason of their employment a form 42 will need to be prepared and submitted reporting this transaction to HMRC. I know many of us think these just sit in a room and gather dust but nevertheless the transaction is on records and so HMRC may wish to look at the valuation at a future date.

Dividends - as far as I am aware it is still OK to pay different levels of dividends to different classes of shares. I know this is an area some feel is open to attack by HMRC especially if it is merely done as a wheeze to avoid employees/ers nic on the earnings.

Waivers - are another option if all the shares remain in the same class but sufficient reserves and proof that there was gain to either party in return for the waivers often renders these a difficult option.

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