Buying a LTd Company

[buddyric]

Is this feasable,legal or just plain daft

Company A is up for sale for £200,000 + stock at £50,000 with a turnover of £800,000

Currently run by a husband and wife team both equal shareholders and directors, have been trading since 1990 Small saleries taken and approx £140,000 in dividens

Purchase agreed at £250,000

Purchaser for nominal sum becomes director of Comapny A

Existing directors resign

Company A issues debenture for £250,000 @ 10% for 3 years via new director in favour of Mr & Mrs olddirectors for full value fixed charge

Company A then arranges for a loan to pay off the debenture charge, within general trading.

Reasoning behind this logic, and please say if it is just stupid

Purchaser cannot raise all the funds,

Company A csn raise funds relatively easy.

All supplier contacts, contracts of employment for two staff stay the same,

Payment facilities stay untouched for credit cards

Goodwill and trading history remain intact
I
I am also presuming that the change of directors would happen at the same time.

Existing directors become creditors of a sucessfull company that they know inside out

Could this work

Kind regards

 

[Billmccallum]

Does not make any commercial sense for the directors selling the business, their own business is borrowing the money to buy them out.

Makes perfect sense for the buyer, a company with £800K turnover for nothing down.

If the new director wants a partner, I'm in, happy to buy a business in this way

 

[teddys]

In order for any one to answer your query it is important to know what happens to the ownership of the company after this arrangement??

 

[MikeJ]

I'd be wondering why someone's selling a business that's making them over £140k per year for £200k (excluding the stock value).

 

[CKG]

As a concept it sounds like good business acumen to me.

It's called a 'seller financed purchase' and is a pretty powerful tool to buy out small businesses.

That's the beauty of business - you can make up your own rules.

Just do your own reaserch and make sure everything is legal.

 

[jim_price]

Nothing wrong with this in principle.

When you say £140K in dividends, is that per annum? As has been said above, it seems a bit of a giveaway if that is the case.

I imagine the vendors deferred consideration will be secured by a charge over the shares, but what would the secondary loan you mention be secured by? I suspect there aren't any assets (other than stock) on the balance sheet, otherwise it's even more of a bargain! You may find obtaining a loan just based on cash flow from trading tricky in this climate.

 

[Christiane]

You certainly can do but I think you need to send a change of ownership letter to the card people, banks, suppliers where they have credit, etc. I looked into doing this last year with one of my competitors but didn't go ahead and stupidly she ended up closing down, her accountant who was dealing with the sale was the stupid one actually.