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Where Taxpayers and Advisers Meet

Private Ltd Company - Share Buy Back On Director Resignation

frank3177
Posts:2
Joined:Wed Aug 06, 2008 4:02 pm

Postby frank3177 » Tue Dec 04, 2007 4:58 am

I am in the process of resigning my directorship in my company of which there are two directors with 50:50 shareholding. I wish to draw £5k = to my initial capital investment and £10k premium when I resign. (Retained profits and capital are available to fund this)

I am looking to find out the most tax efficient way of receiving my capital investment back plus a premium paid for goodwill.

I am thinking about a share buy back. To this end I understand this proceedure will entail filling out forms 169 and 173 via Companies House. Is this the most efficient way of taking my initial captial investment plus premiumd back ?

The net premium will be subject to CGT (after allowances and deduction of capital investment) and the initial share re-purchase by the company subject to Stamp Duty @ 0.5%- from what I understand.

Essentially I am trying to avoid the paperchase around forms 169 and 173. (Being a small company I am exempt from audit so the cost involved with sending an auditors statement alongside for 173 will be onerous)

Can this be done any other way ?

Any help would be appreciated.

J H
Posts:22
Joined:Wed Aug 06, 2008 4:02 pm

Postby J H » Tue Dec 04, 2007 5:32 am

Why not just get the other director to buy your shares for £15k

Your initial cost was 5K meaning your gain is 10K covered by your CGT annual exemption (I assume 15K is fair value)

wamstax
Posts:1939
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Tue Dec 04, 2007 6:05 am

I fear the share buy back will be treated as income distribution as it cannot be for the benefit of the company's business if you are in fact closing it down.
regards
and hope this helps
bill@wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

wamstax
Posts:1939
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Tue Dec 04, 2007 6:07 am

but iof the company is continuing a straight purchase by the director might be simpler to avouid paperchase if thats what you want
regards
bill@wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

wamstax
Posts:1939
Joined:Wed Aug 06, 2008 3:39 pm
Location:Operate Nationally but based in Aberdeen
Contact:

Postby wamstax » Tue Dec 04, 2007 6:09 am

if all you are taking out is £15K then assuming that you do it before 5th April 2008 then you shouldn't have any gain in excess of the annual allowance (assuming that you have no other capital gains during the year)
regards
bill@wamstaxltd.com
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact (mob 07751720507) can be obtained from websites

King_Maker
Posts:6538
Joined:Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Tue Dec 04, 2007 11:41 am

I suspect the difficulty is that the other shareholder does not have and/or want to pay out £15,000 of his own money?

frank3177
Posts:2
Joined:Wed Aug 06, 2008 4:02 pm

Postby frank3177 » Tue Dec 04, 2007 2:21 pm

Thanks for your responses. Business will continue to operate.

The problem I have with the other director buying my shareholding out is that the only way she would be able to fund this immediately is by either:

1. Draw a directors loan - which if this straddles a tax year would give rise to an income tax liability. (?)

2. Seek external funding - not an option for her as the business does not have sufficient assets on which to secure a loan. (There is of course the personal loan or unsecured option)

I can see two options/questions:

Does anyone know if I need to send a statement from an auditor as to the liquidity/viability of my future business after it has bought back the shares (Requirement of Form 173-Companies House). Bearing in mind I own an SME by definition - hence exempt from audit.

Make myself redundant from business and claim and form of ex-gratia payment.

Thanks again for any help.

J H
Posts:22
Joined:Wed Aug 06, 2008 4:02 pm

Postby J H » Wed Dec 05, 2007 1:12 am

You do seem to be trying to do this the hard way.

The one time I have been involed with this we needed a statement and report from external accountants PLUS the solictors got a nice fee PLUS we put an advert in London gazette to fulfill legal requriement PLUS
forms at co house

You initially said there was profit and capital in business so vote divi to cover the amount you want so get other dir the funds to pay you

If you insist on share buy back then be prepared to give your accountant and solicitor some nice cheques

okevin
Posts:154
Joined:Wed Aug 06, 2008 3:41 pm

Postby okevin » Fri Dec 07, 2007 6:15 am

Hi,

Not entirely sure this is altogether helpfull, however I think I have heard recently that financial assistance/whitewash rules have been relaxed somewhat in recent months...especialy for small companies.

Can anyone elaborate?

Instinctive
Posts:1797
Joined:Wed Aug 06, 2008 3:15 pm

Postby Instinctive » Sat Dec 29, 2007 9:27 am

I have seen it mentioned somewhere that there must be at least 2 shareholders left after the share buyback. In your case, apparently there will be only one shareholder left. You should recheck this provision before you proceed.

I believe that Auditor's Report (s 173(5) CA 1985, completion of Form G173 and notice in London Gazette and newspaper are only required if the share buyback is out of capital as opposed to out of distributable profits.

Subject to first paragraph above, I believe that you only require to comply with the following:

(1) Ensure that articles of association must authorise the repurchase. Table A of Companies Act 1985 apparently includes this at para 35.

(2) Shares to be repurchased must be fully paid up.

(3) Consideration from the company must be paid when sale occurs

(4) There must be irredeemable shares in issue, held by at least two persons, after the repurchase has taken place.

(5) There must be a shareholder approval of the proposed contract for repurchase. Such approval must be by a special resolution at an extraordinary general meeting of the company.

(6) Special Resolution must be filed with Registrar of Companies within 15 days of the meeting.

(7) The company must complete form G169, have it stamped at 0.5% of the repurchase price and send to Companies House within 28 days of the repurchase.

(8) Notify Board of H M Revenue & Customs of the repurchase immediately after the execution of the contract and to retain the contract for 10 years.

(9) S 219 ICTA 1988 must be complied with to secure CGT treatment. This states that the company must be an unquoted trading company, purchase must be made wholly or mainly for the purpose of benefiting a trade carried on by the company and the purchase must not form part of a scheme or arrangement, one of the main purpose of which is to enable the vendor to participate in the profits of the company without receiving a dividend or the avoidance of tax. You could apply to secure advance clearance under S 225(1) ICTA 1988 from the board of H M Revenue & Customs.

I hope this helps.


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