Forming LTD co, quick question ?

[bsr1976]

Hi,

I am currently in the process of starting a LTD company. Myself as MD and wife as company secretary. I just want to ask a question......

With regards to dividends, is it best if we have 50/50 split shares in the company? I'm a little confused as to how to share the thousand shares between us, without shooting myself in the foot with regards to tax and other legal issues.

Any advise or suggestions would be appreciated.

Thanks

 

[Alpha]

Quick advice

Don't issue the 1000 shares keep it to say 100.
You have to bear in mind that at some point those shares will have to be paid for.

The best split depends upon an analysis of any other earnings/income either one of you have and how much.

If neither of you have any substantial income then 50-50 would be best.

 

[bwglaw]

In case you do not know your wife does not have to be a shareholder if she has no involvement other than as Company Secretary. Company Secretaries are not Directors or Shareholders. However some companies issue shares to a Company Secretary.

If you are intending to be the sole Director and you wish to have your wife as share then I would advise you hold the majority of shares. a straight 50/50 split can sometimes lead to difficulties. Remember that Directorship is seperate from shareholding

Perhaps you could elaborate or clarify your intentions. [Addition] I have to add that what is tax efficient is not always legally efficient and they don't always coincide so do expect to get different advice from a tax perspective.

 

[bsr1976]

Hi guys,

Thanks for the info, very useful. To go into a bit more detail, I have not created a company yet, I am in very early stages.

Basically, both myself and my wife will be shareholders. The main reason for this is because of dividend payments. So if we have 50/50 split then dividends could be shared equally, correct? But if I had majority say 80/20 split, then I would receive more dividend than her, but could potentially end up with a higher tax bill ?

Also my wife works part time, so if she continued to receive that salary, and received a dividend payment from our LTD company, would she have to complete self assesment as well?

Again thanks in advance!

 

[Alpha]

Basically, both myself and my wife will be shareholders. The main reason for this is because of dividend payments. So if we have 50/50 split then dividends could be shared equally, correct? But if I had majority say 80/20 split, then I would receive more dividend than her, but could potentially end up with a higher tax bill ?

Thats quite correct however depending on how much the part time earnings are a 50/50 split would have your wife ending up with a slightly higher tax bill.

Also my wife works part time, so if she continued to receive that salary, and received a dividend payment from our LTD company, would she have to complete self assesment as well?

If your wife is shareholder she may have to complete a self assessment return, depending on the amount of dividends and other income she receives.

If you make her a director as well then you will both need to complete a tax return anyway.

 

[Ozzy]

What Alan is saying is correct regards tax levels, he is an accountant after all

My wife only has one other unpaid job outside Quick Formations, and that is housewife and mother, so we have no issues with other incomes. Quick is also my only income, so we have split the shares 50/50 and pay out of the company dividends over and above a basic salary to us both.
As Quick was formed as this structure, and she does do some work for the company, and we do employ other staff aswell, we do not fall under the Arctic case issue. However, depending on your own circumstances and what you will actually be doing, I would recommend you have a look at this too just incase.
From the outside it does look like you may need to balance the share holding taking into account your wifes other income.

 

[Marke[T]hink]

Quick advice

Don't issue the 1000 shares keep it to say 100.
You have to bear in mind that at some point those shares will have to be paid for.

The best split depends upon an analysis of any other earnings/income either one of you have and how much.

If neither of you have any substantial income then 50-50 would be best.

Alpha, why do you advice not to issue 1000 shares but 100? Are share related to capital that you put in? For example, if I'm putting in GBP3000 to start, with GBP1 each shares. Isn't that mean that I must have 3000 shares?

I'm planning to be a sole director (100% ownership) with my wife as company secretary. She will not have any share and will only being paid for her work. The reason being she has already at top of 22% bracket. Is this structure fine?

Thanks for your advice.
Regards,
Faizi

 

[Alpha]

Faizi

If you put £3000 into the company and it is all share capital then there is always a risk that if the company doesnt perform as you would wish and is dissolved you would lose that £3000.The only way of getting your £3000 back under normal circumstances would be to either sell the shares or liquidate the company.
If you take just £100 in share capital and put the £2900 as a directors loan you would be able to extract this money whenever you wish (assuming sufficient funds in the company).

The other point of view would be if you require substantial loans in the business. A bank or investor would be more comfortable with giving money to a business where the owner has placed capital into the business in the form of shares than by loans for the same reasons as described above.

As to your structure it would currently be the most flexible and sensible one for tax purposes.

Obviously circumstances may change, your wife may work full time in the business at which point the answer would probably change, however under current legislation you would be able to gift shares to your wife with no future tax consequences.

 

[Marke[T]hink]

Faizi

As to your structure it would currently be the most flexible and sensible one for tax purposes.

Obviously circumstances may change, your wife may work full time in the business at which point the answer would probably change, however under current legislation you would be able to gift shares to your wife with no future tax consequences.

Thanks for your advice. It's getting clearer for me. But, I've never heard of the gift shares - is that new?

BTW, Alan do you serve customers outside Midland as well?

 

[Alpha]

Thanks for your advice. It's getting clearer for me. But, I've never heard of the gift shares - is that new?

gifting shares is a term for giving shares free. (however if a company is well established then the Capital Gains Tax rules regarding market will apply if it is not a spouse that the shares are being transferred to).

BTW, Alan do you serve customers outside Midland as well?

I have a large number of clients outside the midlands