retained profit and succession

gavinsorby · May 13, 2009

We are a limited company with a couple of directors approaching retirement. In addition to the company buying their shares from them they are suggesting that they are entitled to a share of the retained profit that the business uses as working capital. As one of the directors left behind I would like to know if they can do this. Any asistance would be gratefully recieved.

GBS

Zeno · May 13, 2009

I wouldn't say so. This will have been (or should have been) accounted for in the valuation of the shares.

gavinsorby · May 13, 2009

Neither would I. hence the post here. Retained profit is not really accounted for in the valuation, our share value is a function of turnover only which all directors were happy with based on independant advice at the time we converted from partnership to ltd. I think they have some ideas based on their partnership history.

Zeno · May 13, 2009

gavinsorby said:
Neither would I. hence the post here. Retained profit is not really accounted for in the valuation, our share value is a function of turnover only which all directors were happy with based on independant advice at the time we converted from partnership to ltd. I think they have some ideas based on their partnership history.

Anything from the partnership should have been brought it via director's loans & goodwill etc when the company was formed.

You cannot value shares based solely on turnover. Who was this advice from?

gavinsorby · May 13, 2009

Chegwidden valued us....in fairness they used a mix of 4 methods and our directors at that time (I was not one) decided the end result was a basically a function of our turnover as our profit as a percentage is pretty consitent.

Old partner capital accounts were converted to directors loan accounts which are now almost paid out. They also took the value of goodwill out over 4 years to get taper relief and have begun to sell their shares.

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