• Visitors can check out the Forum FAQ by clicking this link. You have to register before you can post: click the REGISTER link above to proceed. To start viewing messages, select the forum that you want to visit from the selection below. View our Forum Privacy Policy.
  • Want to receive the latest contracting news and advice straight to your inbox? Sign up to the ContractorUK newsletter here. Every sign up will also be entered into a draw to WIN £100 Amazon vouchers!

Limited company valuation to buy shares off of partner

Collapse
X
  •  
  • Filter
  • Time
  • Show
Clear All
new posts

    #11
    Originally posted by northernladuk View Post
    Or she just could just gift them back.
    Indeed, it would be much simpler.

    Comment


      #12
      It is well established in tax law that assets can be transferred between spouses at no-gain/no-loss for tax, however if you are not married then this is not the case. Transactions made at less than market value are subject to CGT on the full market value of the asset – however, putting a value on a private company (i.e. where the shares are not listed on a public exchange) is not straight forward, and the valuation could range anywhere from the company’s net asset value (on balance sheet) to the net present value of future income (dividends).

      If HMRC were to look at this (granted unlikely) then they would be interested in what the shares would be worth on an open market i.e. outside your household.

      By way of example, let’s say you were selling the shares to me (i.e. an unconnected third party), and 11 shares is 11% of the issued share capital.

      How much would you be willing to sell 11% of your future income for? My guess is that it would be more than the net asset value of the company.

      How much would I be willing to pay for 11% of your business? Given the risk that you could walk away tomorrow, and the company cease to generate income/pay a dividend – it would certainly be less than what I’d pay for 11% of a business that can operate independently of its owner, but I’d give you more than the net asset value.

      Comment


        #13
        Originally posted by Alchemy Accountancy View Post
        How much would I be willing to pay for 11% of your business? Given the risk that you could walk away tomorrow, and the company cease to generate income/pay a dividend – it would certainly be less than what I’d pay for 11% of a business that can operate independently of its owner, but I’d give you more than the net asset value.
        wanna buy some shares??????
        See You Next Tuesday

        Comment


          #14
          Originally posted by gables View Post
          Indeed, it would be much simpler.
          If we had a bit of background as to why he's doing this he'd probably get better advice. Looks more like a thread where the OP is looking for an answer and doesn't want to hear the full advice as he know's he won't like it.
          'CUK forum personality of 2011 - Winner - Yes really!!!!

          Comment


            #15
            Originally posted by northernladuk View Post
            If we had a bit of background as to why he's doing this he'd probably get better advice. Looks more like a thread where the OP is looking for an answer and doesn't want to hear the full advice as he know's he won't like it.
            Agreed. My jump to assumption is he's getting divorced and wants to limit what's in the settlement - prejudging git that I am.

            Comment


              #16
              Originally posted by gables View Post
              Agreed. My jump to assumption is he's getting divorced and wants to limit what's in the settlement - prejudging git that I am.
              You've described yourself accurately this time, I'd say.

              The much more likely scenario is that his partner now has a job, or a better job, so they want to change the shareholding split so that the partner's dividends don't incur high taxation.

              Comment


                #17
                Originally posted by Alchemy Accountancy View Post
                It is well established in tax law that assets can be transferred between spouses at no-gain/no-loss for tax, however if you are not married then this is not the case. Transactions made at less than market value are subject to CGT on the full market value of the asset – however, putting a value on a private company (i.e. where the shares are not listed on a public exchange) is not straight forward, and the valuation could range anywhere from the company’s net asset value (on balance sheet) to the net present value of future income (dividends).

                If HMRC were to look at this (granted unlikely) then they would be interested in what the shares would be worth on an open market i.e. outside your household.

                By way of example, let’s say you were selling the shares to me (i.e. an unconnected third party), and 11 shares is 11% of the issued share capital.

                How much would you be willing to sell 11% of your future income for? My guess is that it would be more than the net asset value of the company.

                How much would I be willing to pay for 11% of your business? Given the risk that you could walk away tomorrow, and the company cease to generate income/pay a dividend – it would certainly be less than what I’d pay for 11% of a business that can operate independently of its owner, but I’d give you more than the net asset value.
                Would you? Really? When the owner/manager could walk away tomorrow and start contracting through a newco?

                Doesn't seem the correct advice for me. Massive risk considering how easy it is for someone to speak to their agency and change their current contract into the name of a newco.

                Comment


                  #18
                  Originally posted by Alchemy Accountancy View Post

                  How much would I be willing to pay for 11% of your business? Given the risk that you could walk away tomorrow, and the company cease to generate income/pay a dividend – it would certainly be less than what I’d pay for 11% of a business that can operate independently of its owner, but I’d give you more than the net asset value.
                  I could find you loads of companies that would be willing to sell for more than net asset value if you are interested
                  Normally I would discount down from net asset value if looking at a company to purchase as a 'cash shell' as it will cost you money to get the reserves out of the company!

                  Martin
                  Contratax Ltd

                  Comment


                    #19
                    Originally posted by craigy1874 View Post
                    Would you? Really? When the owner/manager could walk away tomorrow and start contracting through a newco?

                    Doesn't seem the correct advice for me. Massive risk considering how easy it is for someone to speak to their agency and change their current contract into the name of a newco.
                    I knew there would be conflicting opinions on this – but put yourself in the shoes of HMRC…if they were to look in to this and tax is at stake, will they just settle for net assets or would they challenge it?

                    Any challenge is not going to happen on the day of the transaction taking place, but at some point, down the line, where there is likely going to be evidence of the company’s continued trading activity. It will be plainly clear by then that the company’s future income had a value over and above the net assets at sale.

                    With a topic as subjective as this, you cannot possibly advise people that their company is worth is it’s net assets and not make them aware that there is a risk (however small) that HMRC might not see it this way.

                    Share transactions made on a commercial basis are subject to due diligence and come with attached conditions/warranties to protect the investor – it is not the case of handing over a load of cash and hoping for the best.

                    Comment


                      #20
                      Originally posted by craigy1874 View Post
                      Would you? Really? When the owner/manager could walk away tomorrow and start contracting through a newco?

                      Doesn't seem the correct advice for me. Massive risk considering how easy it is for someone to speak to their agency and change their current contract into the name of a newco.
                      Correct.

                      But let's put that comment into the context of this thread, which is about what the proper price is for shares in a company when the owner/manager is the buyer, not the seller. In which case the owner/manager is not going to both pay a higher price and walk away tomorrow, is he?

                      I'd imagine HMRC would argue that the owner/manager knows he isn't going to walk away if he's buying shares, and as such, the value SHOULD include some recognition of future earnings, especially if OP is currently in contract.

                      Comment

                      Working...
                      X