Company Share Buy Back

[Marleypotts]

Current scenario

Ltd Company with 3 directors.
Director A has caused quite a lot of bother in the company recently, and could risk the companies performance if is still a shareholder and director.

The other 2 directors want this director/shareholder out of the company for its own good, but dont want to stump up the cash to buy the shareholder out.
They have expressed an interest in company share buy back.

The director is asking for £72000 for the shareholding.
There are only reserves of £15000 currently available.

The director has mentioned that they would accept the payments over the 5 years, and would pay the CGT in the first year.

The company is expected to have reserves per year to cover the monthly payment.

Is this allowable?

Any advice would be greatfully accepted

Many Thanks

[James Price]

The scenario you have presented won't work. Cash must be paid for the shares so the deferred payment schedule doesn't cut it.

The lack of reserves isn't necessarily a problem as a private limited company can make a Permissible Capital Payment (i.e. create a negative P & L reserve) provided that the directors can provide assurances that creditors will not be affected.

Perhaps the company could borrow the money to make the payment? That could be easier said than done in this environment.

There are also a number of criteria to consider before determining that the departing director can get capital treatment, but that will be a moot point until the company law requirements are satisfied.