Tax implications of transferring all company shares?

[gglaze]

Hi, I am preparing to transfer all shares and directorship of my company to another person, for about a month or two - please see my post in the Legal forum for an explanation of why - and I am trying to understand if there will be any tax implications as a result of this. One tax advisor I spoke with mentioned something about a number of tax complexities involved with such a transfer, but I couldn't really understand what they are talking about.

The general plan is for the bank account to stay the same - I will be the only person authorized to touch it, and the invoices sumbitted and dividends withdrawn will all still be to and from me - the new director/shareholder will simply be there for nominal purposes, and will not have any incoming or outgoing access to finances. However, they will gain ownership (temporarily) of the shares - but those shares will be returned to me intact after a month or two.

Are there any additional tax implications or special considerations I will need to take into account in order to make this happen?

Thanks for all your help!

[Alpha]

Gglaze

Your big problem is not really a tax issue.

I'm not sure about the regulations for obtaining a work permit but perhaps you or someone else on the forums might be able to fill us in.

Firstly as you have setup a limited company it exists in its own right and if you are a director you are also an employee of the company.

The shares that you hold should currently be registered (I presume) at companies house under your name (This depends on how the formation was done and if transfer forms have been submitted) so there is already a record of your ownership of the company which is available to the authorities. This means that temporarily switching shares so that it looks like a company not owned by you is offering you employment, just is not going to work.

The only possibility on this front would be to arrange employment with another company(There is no reason to abandon your company for this purpose) gain your visa and then leave said company to work again for your own. I'm sure there must be legislation that prevents this option but if not then try it!

Taxwise when you transfer the shares there is a capital gain immediately as the the shares will have a value. EG if your company has issued one £1 share and your retained profits to date are £100,000 then there will be a capital gain of approx £99000 i'm ignoring indexation allowances etc to keep it simple.

Once the shares are transferred ther is no legal right to dividends, the profit in the company (although if you remain a director you are still effectively an employee) and I'm not sure that affidavits can be signed to ensure that you remain in control (More of a legal situation and input required from our legal fraternity)

be interested to see how this case pans out

[gglaze]

Hi asmoore,

Thanks for the reply. A couple of notes about the legal stuff, but I'll leave the bulk of that for the discussion in the legal forum:

1. Although personally for me this may be a temporary switch, once the switch is made with Companies House, there is no reason for them (or the Home Office issuing work permits) to assume it is anything but a permanent switch. At that point, it should fall into work permit regulations, as the main idea is that I cannot be the owner of the company for which I am applying for a work permit. So I don't believe there is anything reason for the Home Office to reject such an application, even if they do have access to the previous records, because the current state of affairs should be acceptable.

2. I am already here on a work permit from another company, which theoretically could keep me here for another 4 years. The problem is that all work permits are technically void when you switch companies - so even if I did what you are suggesting, I would never be able to switch back to working for my own company, because I would always end up in the same situation I'm in right now.

3. Worst case, I suppose I could shut down my company completely, and then start up a completely new company and set up a new contract to replace the old contract - in this case, I could have the appropriate person acting for me as director and shareholder right off at the start - the problem here is that I would need to set up a new bank account, and go through all the formalities again, and pay the formation costs again (unless I know enough to do it myself this time).

Ok, regarding the tax issues:

1. I half-way understand what you are telling me. So basically when I transfer the company to someone else, I need to apply capital gains tax to the full amount of profit earned by the company up to that point. How do I define this profit? Is it before or after dividends and/or tax are paid out? I assume it is definitely after expenses and salary are paid out? Is it simply the amount in the bank at the time? If my account is essentially empty, because I've maxed out dividends up to that point, is there any profit? What is the best way for me to minimize these capital gains until all of this is done? Should I hang on to all invoices until I regain control of the company, and make my customer aware that they are going to get a big chunk of invoices in a couple of months?

2. Where can I get a good idea about the tax rates and breakdown for this particular tax (capital gains)? Or is it simple enough for you to explain how it works? And when exactly is it due?

3. Regarding the idea that I can't pay myself dividends while I'm not a shareholder - yeah obviously you're right, I don't know why I didn't think of that. So I guess I'll pay the max dividends possible up until the last moment, and then start paying salary during that period. Is it possible for me to pay all of my salary for the year during that period, and then switch back to only paying dividends after I regain the shares? Or does salary need to be balanced throughout the year with even amounts each month?

Thanks again - your advice is very helpful.