selling shares back to the company

[Pondlife]

I have a mate who's in a bit of a pickle so thought I'd check here (cos it's free)

His setup is that he went into business with an accountancy company to provide advice as an IFA. The setup is that he is the director of Numpty Wealth Management Ltd (NWM) with a 50% Share holding. This two business partners are directors of Numpty Accountancy Ltd (NA) but each also have a 25% shareholding in NWM.

The idea was that they would refer their clients to him and take their cut via divs etc. These guys specialise in the more adventurous end (VCTs, SDLT Planning etc) but both companies would share services/offices/branding etc

Things aren't working out and so my mate has agreed his NWM company will buy their shares back for about £20K - essentially paying them back for the startup capital and some good will etc and start trading under a different name.

How is the best way to handle this? Bearing in mind also that it can't be a one off payment but will be spread over a couple of months.

TIA

[northernladuk]

Has he asked an accountant.... oh.. balls.. they are accoutants...

[geoff from contracta IOM]

I have a mate who's in a bit of a pickle so thought I'd check here (cos it's free)

His setup is that he went into business with an accountancy company to provide advice as an IFA. The setup is that he is the director of Numpty Wealth Management Ltd (NWM) with a 50% Share holding. This two business partners are directors of Numpty Accountancy Ltd (NA) but each also have a 25% shareholding in NWM.

The idea was that they would refer their clients to him and take their cut via divs etc. These guys specialise in the more adventurous end (VCTs, SDLT Planning etc) but both companies would share services/offices/branding etc

Things aren't working out and so my mate has agreed his NWM company will buy their shares back for about £20K - essentially paying them back for the startup capital and some good will etc and start trading under a different name.

How is the best way to handle this? Bearing in mind also that it can't be a one off payment but will be spread over a couple of months.

TIA

Two options spring to mind quickly -

1) He can agree a price for their 50% of shares , say 50 at 400 per share and sign an agreement to purchase those shares over the course of the time needed to raise the necessary funds.

2) The company can pass a resolution to buy back 50% of its shares e.g. 50 shares at a price of 400 per share and the company enters an agreement with the other two shareholders to buy 50 shares over the period of time required to raise the funds.

Number 2 is the preferred option as if he buys the shares personally he will have to pay income tax on the money taken from the company to personally buy the shares. If the company does a share buy back it can do so with company funds and there is no cost to him as an individual except less retained profit to divi out of the Co. The end result is the same he still holds 100% of the issued shares for the company.

It would depend on the issued share capital how exactly this will work but it's simple to make adjustments to the share issue if necessary.

[Pondlife]

Thanks Geoff.

If assuming there were 100 x £1 shares originally does this mean once bought back there are only 50 in circulation. Therefore next return and future divs would reflect this?

[geoff from contracta IOM]

Thanks Geoff.

If assuming there were 100 x £1 shares originally does this mean once bought back there are only 50 in circulation. Therefore next return and future divs would reflect this?

Thats right any divis are just paid out on 50 shares rather than 100 but there can always be a new share issue if your friend needs to bring in new investors, partners or wife