business buyout

[kh592]

Married for over 30 years and in partnership with our business she has desided to leave and wants a divorce, our business employs 16 people 3 of which are our daughters who basically run the business, im a 51% shareholder she has 49%, our company is limited and has been trading 20 years we are doing really well even in this recession. I have started to seek legal advise with regard to buying her shares, she has requested a valuation of our company and I wonder how much I might need to pay to buy her shares? im told because its a long marriage and the fact I will continue in the business with a salary once I have bought her shares? its likely to be more than 50% of the value of the company I will have to pay due to the fact that she would no longer have a salary from our company. this is my first time in forum and have lots to ask if anyone would kindly help
Regards
kh

 

[appyammer]

you dont have to buy her shares, you can pay yourself a wage and not declare a dividend, may not be tax effective though, we had a business partner that left and held us to ransom but we held out for 3 years eventually agreeing on what we thought was to much for his shares but it was costing us more in tax

 

[Vaheed Akhtar]

Sorry to hear about your predicament fella. I think you need to sit down and work out what will be best for yourself and the business in the long term. Will it be better (not just from a business point of view) to pay her what her share is worth and be over and done with? I'm not sure she's entitled to anymore than what her share is worth, as she is the one who wants the divorce. If you have an accountant, why not get him and a good lawyer to get together and see if they can work it out for you? Good luck !

 

[kh592]

you dont have to buy her shares, you can pay yourself a wage and not declare a dividend, may not be tax effective though, we had a business partner that left and held us to ransom but we held out for 3 years eventually agreeing on what we thought was to much for his shares but it was costing us more in tax

Thankyou for your message, I understand I can do that our business owns the premises 10,000 sq ft + development land and turns over just under 4 million so a valuations is going to be fairly high, if I did as you say she may well take me to court to force me to buy her out? I believe she has a contractrual right to a salary but not a right to a dividend, What is worrying is the effect on my business if I did borrow from the bank and pay her off which I guess might be around £500-600,000

Regards
KH

 

[kh592]

Sorry to hear about your predicament fella. I think you need to sit down and work out what will be best for yourself and the business in the long term. Will it be better (not just from a business point of view) to pay her what her share is worth and be over and done with? I'm not sure she's entitled to anymore than what her share is worth, as she is the one who wants the divorce. If you have an accountant, why not get him and a good lawyer to get together and see if they can work it out for you? Good luck !

Thankyou for your message, its mainly down to the cost due to the forth coming valuation of my business, yes to pay her what her shares are worth would be great but then my business is left with a dept to the bank of £500/600,000 which is what I think her share may be worth, alot of pressure on my business in this economy, ive spoken with my accountant and my solicitor advises I take it to court to get a Clean Break

Regards
KH

 

[Frankus]

Why not seek to sell her shares to an external party? Perhaps there is someone in the same (or similar) industry looking to get a share in a company like yours. Might even be beneficial in that they will bring expertise in their field and maybe even a few clients.

Just a thought.

 

[kh592]

Why not seek to sell her shares to an external party? Perhaps there is someone in the same (or similar) industry looking to get a share in a company like yours. Might even be beneficial in that they will bring expertise in their field and maybe even a few clients.

Just a thought.

Being a family business for over 20 years I would be very reluctant to entre into a partnership with another person as I have had some bad experience many years ago, but thankyou for your thoughts.

 

[Rhodes100]

I'm not a divorce lawyer but what confuses me is that the shares are not a joint asset. Now I can understand it if you both owned a house jointly as she wanted the money to move on.

The shares are held in her name so I would have thought that there would not have been a legal obligation for you to purchase them, unless the shareholders agreements state that there is. If her shares were invested in British Gas surely she would not expect you to buy those shares. Perhaps though you neither of you want her to have shares in the business anymore.

The issue of her being employed is easy, just give her redundancy money.

If you purchased these shares and then died there would be a significant amount of inheritance tax payable I would have thought.

Are your daughters in a position to buy out their mother? If not immediately but over a period of time, it would seem that there might be some workaround with inheritance tax planning here with transferring the assets to your children so that they become a greater part of the family business.

Unless of course your wife wanted loads of cash now and has no intention of passing on part of her estate.

 

[The Printed Bag Shop]

Sounds a difficult situation, I would seek legal advice

 

[Philip Hoyle]

Have you established that she wants you to buy her shares? Are you sure that she wouldn't be "happy" to keep them to earn an income (dividends) and potential future capital gain at a future sale?

Don't see how she can expect more than 50% of the value. Surely the valuation will reflect potential future profits as well as current tangible asset values, not to mention the necessity for you to continue working in the business to keep it operating profitably. If you're a "key" person, I'd say that there'd be a discount to her share value rather than an uplift if you work in the business and she doesn't.

However hard it may be, I think you need to actually discuss the company with her and sound her out as to what she really wants, and then consider that in the harsh reality of a new day to consider whether or not you're happy with her staying a part owner alongside you if that's what she wants - i.e. whether she's the type of person to be a nuisance or whether she's the kind who'd just be content as long as she saw a regular dividend cheque and the company progressing OK to secure future capital gain. Many people have "sleeping" partners and co-owners - you need to look at whether you're the kind of people who could make it work. Obviously if she wants "out" for whatever reason and needs to see a shed load of cash in her bank account, then you may have no realistic alternative to buying her out.

 

[kh592]

I'm not a divorce lawyer but what confuses me is that the shares are not a joint asset. Now I can understand it if you both owned a house jointly as she wanted the money to move on.

The shares are held in her name so I would have thought that there would not have been a legal obligation for you to purchase them, unless the shareholders agreements state that there is. If her shares were invested in British Gas surely she would not expect you to buy those shares. Perhaps though you neither of you want her to have shares in the business anymore.

The issue of her being employed is easy, just give her redundancy money.

If you purchased these shares and then died there would be a significant amount of inheritance tax payable I would have thought.

Are your daughters in a position to buy out their mother? If not immediately but over a period of time, it would seem that there might be some workaround with inheritance tax planning here with transferring the assets to your children so that they become a greater part of the family business.

Unless of course your wife wanted loads of cash now and has no intention of passing on part of her estate.

Thankyou for your reply, You are correct I don't have a legal obligation to purchase her share but as our marraige has ended I would not want her as part of the business anymore, interesting about making her redudant!!! also about inheritance tax I must look into that making sure the purchase of her shares are done in the best possible tax way, ive been advised that the company purchasing her shares is the best way, we could not work or be partners anymore as all communications have broken down and its all through solicitors now
Regards
KH

 

[PBDPConsulting]

Thankyou for your reply, You are correct I don't have a legal obligation to purchase her share but as our marraige has ended I would not want her as part of the business anymore, interesting about making her redudant!!! also about inheritance tax I must look into that making sure the purchase of her shares are done in the best possible tax way, ive been advised that the company purchasing her shares is the best way, we could not work or be partners anymore as all communications have broken down and its all through solicitors now
Regards
KH

Sound like you pretty much know what you are going to do.

You said earlier "its likely to be more than 50% of the value of the company I will have to pay due to the fact that she would no longer have a salary from our company." Some questions: If she walks away from her job, does she have any rights to a salary? (She might claim constructive dismissal I suppose). And as a single employable person, wouldn't she be expected to work? (She would expect some maintenance and/or the balance from you to make up for any lower earnings caused by her leaving her current job.) Next, as you will be buying her shares, she has the opportunity to invest what you pay her and earn from the investment. Wouldn't that lower the amount you had to pay her?

I hope you find some satisfactory resolution.

 

[kh592]

Sound like you pretty much know what you are going to do.

You said earlier "its likely to be more than 50% of the value of the company I will have to pay due to the fact that she would no longer have a salary from our company." Some questions: If she walks away from her job, does she have any rights to a salary? (She might claim constructive dismissal I suppose). And as a single employable person, wouldn't she be expected to work? (She would expect some maintenance and/or the balance from you to make up for any lower earnings caused by her leaving her current job.) Next, as you will be buying her shares, she has the opportunity to invest what you pay her and earn from the investment. Wouldn't that lower the amount you had to pay her?



I hope you find some satisfactory resolution.

She has a contractual right to a salary im told but no right to a dividend,she was offereda job within our company when all this happened but chose not to take it as she has'nt worked in our company for over 5 years she simply wanted to retire and as her husband I was willing to let her do that I continued to do my part with the company. with her investment she would yes get a return but don't think it would have any bearing on share price or percentage payout

Regards
KH

 

[kh592]

Have you established that she wants you to buy her shares? Are you sure that she wouldn't be "happy" to keep them to earn an income (dividends) and potential future capital gain at a future sale?

Don't see how she can expect more than 50% of the value. Surely the valuation will reflect potential future profits as well as current tangible asset values, not to mention the necessity for you to continue working in the business to keep it operating profitably. If you're a "key" person, I'd say that there'd be a discount to her share value rather than an uplift if you work in the business and she doesn't.

However hard it may be, I think you need to actually discuss the company with her and sound her out as to what she really wants, and then consider that in the harsh reality of a new day to consider whether or not you're happy with her staying a part owner alongside you if that's what she wants - i.e. whether she's the type of person to be a nuisance or whether she's the kind who'd just be content as long as she saw a regular dividend cheque and the company progressing OK to secure future capital gain. Many people have "sleeping" partners and co-owners - you need to look at whether you're the kind of people who could make it work. Obviously if she wants "out" for whatever reason and needs to see a shed load of cash in her bank account, then you may have no realistic alternative to buying her out.

Thankyou for your message, my wife left for a new relationship and has cut off all communications other than through solicitors so to establish what she wants is proving difficult and ofcourse due to her actions I would'nt want her part of my life anymore. I do hope the valuation she has instructed does return with consideration to the factors you mention, she decided to retire from our business 5 years ago and I continued to control the business up until this day. She would be a nuisance sadly watching and questioning anything I might do within the company so I guess I won't have any realistic alternative but to buy her out its just at what price!!!! knowing this present difficult economy I would be very reluctant to have a large loan with the banks to do this.

Regards
KH

 

[Rhodes100]

Except that shareholders have no right to be involved in the business apart from having a say at the AGM, once a year for an hour if she bothers to come along. You dont get BT shareholders sitting in the head office questioning how the business is run! She would not have a right to be in the office as a shareholder.

I can see your point however in not wanting her as a shareholder. If you want to sell at any point in time, she could continue to mess up your life by refusing to cooperate with the sale.

You could dilute her shareholding by issuing new shares if you wanted to invest say £100k, rather than buy her out for £500k. She would have to invest pound for pound, if she didnt she would be left with say 10% of the company, which would be worth considerably less that the 49% she now has!

So by investing £100k you might be saving £300k in buying her share.

 

[kh592]

Except that shareholders have no right to be involved in the business apart from having a say at the AGM, once a year for an hour if she bothers to come along. You dont get BT shareholders sitting in the head office questioning how the business is run! She would not have a right to be in the office as a shareholder.

I can see your point however in not wanting her as a shareholder. If you want to sell at any point in time, she could continue to mess up your life by refusing to cooperate with the sale.

You could dilute her shareholding by issuing new shares if you wanted to invest say £100k, rather than buy her out for £500k. She would have to invest pound for pound, if she didnt she would be left with say 10% of the company, which would be worth considerably less that the 49% she now has!

So by investing £100k you might be saving £300k in buying her share.

Very interesting with regard to diluting her shares, she did get as I did a large sum of money from the sale of our marital home and wonder if her solicitors would advise her to invest if I did that? the other issue I would have in doing something like that is would a court see it as me being unfair with her and stop it from happening? I guess at this point in time I can wait for this valuation she is having done to come back, see if its reasonable and if so pay it, kind of you to respond and thankyou very much for that.

Regards
KH