Money Taken from business

[Winifred]

Can anyone give me an answer to this conundrum. Propective Purchaser was being shown how to manage the business whilst we waited for him to get his final payment for business. He owned 40% of shares at that point. He started demanding that we give him money as he was coming in at least three days a week during April-May. In all he took about £1200 out of the business tht we know of. He has since returned shares and all claims on both sides are supposed to be cleared. However how do I account for the cash taken from the business?

 

[cws accounting]

When you say "cash taken" are you saying he stole it, or did you agree to pay him the money?

 

[akirk]

Assuming you are asking an accounting question...

three choices:
- contracted - was he self-employed - did he give you invoices
- employed - did you pay paye / NI / notify as required
- dividends - do you have sufficient profits to pay across the whole class of share that money

dividends may be your simplest

if he wasn't meant to take it out then contact the police
who allows a prospective purchaser to have shares / take money out before they have bought?!

Alasdair

 

[MyAccountantOnline]

dividends may be your simplest

But if he only owned 40% of the shares the other shareholder will have to take a dividend too.

 

[MyAccountantOnline]

A little more information is needed really - what reason did he give for taking the money? Was he drawing a salary, claiming expenses, taking a repayment of a directors loan....etc?

 

[akirk]

But if he only owned 40% of the shares the other shareholder will have to take a dividend too.

exactly which is why I asked if there was the cash to pay across the whole of that class...

we don't know, though common, whether 100% of shares are the same class - certainly not in one of my businesses...

if they are then only needs a further 1800 to pay the remainder of the dividends - post tax - may still be the cheapest approach, and even the only approach where he is not penalised for not doing it properly

Alasdair

 

[MyAccountantOnline]

exactly which is why I asked if there was the cash to pay across the whole of that class...

we don't know, though common, whether 100% of shares are the same class - certainly not in one of my businesses...

if they are then only needs a further 1800 to pay the remainder of the dividends - post tax - may still be the cheapest approach, and even the only approach where he is not penalised for not doing it properly

Alasdair

It's very rare in my experience to see a company set up with different share classes but I agree.

Certainly a case of more information needed.

I certainly wouldnt be looking at back-dating a dividend payment.

 

[Winifred]

Its a mute point - shall we say my husband is small and not used to having a large man insisting that he has something to go on with. When I went back into work the money demand stopped. The fact that we were waiting for him to find the rest of the purchase money escaped him. Anyway at this stage just do not want to find us having to pay his tax! We ae closing the business as of 31st and retiring - had enough.

 

[MyAccountantOnline]

Its a mute point - shall we say my husband is small and not used to having a large man insisting that he has something to go on with. When I went back into work the money demand stopped. The fact that we were waiting for him to find the rest of the purchase money escaped him. Anyway at this stage just do not want to find us having to pay his tax! We ae closing the business as of 31st and retiring - had enough.

So was this money a salary?

 

[Winifred]

It had to be a share sale because the business had after 24 years acquired "assured tenancy" and the landlord would not give him a lease. We now know why (no credit rating!) but at the time was grateful for a sale of the business so we could retire. We set shares against the deposit. No, he was not given a contract of employment - he was supposed to be coming in to learn the business whilst waiting to release his pension. Do I care if he gets into trouble sorry to say no - he cost us to get the shares back and get rid of him just so we could close this place down. He set up in town in competition! So no further sale really possible in current climate.
As we have the shares back he isn't entitled to a dividend. He was only in the place about 20 days off and on.

 

[What If]

Whats a 'mute point'?

 

[akirk]

It's very rare in my experience to see a company set up with different share classes but I agree.

Hugely common - pretty much every business with investors will have different classes / preferences / etc.

It is also a very good idea where you might wish to use dividends but pay them at different rates....

but getting off-track here

Alasdair

 

[MyAccountantOnline]

I'm a bit confused...if he's taken this money without authority/accounting for it isnt this theft??

 

[MyAccountantOnline]

Hugely common - pretty much every business with investors will have different classes / preferences / etc.

It is also a very good idea where you might wish to use dividends but pay them at different rates....

but getting off-track here

Alasdair

Having been an accountant for 20 years plus and having dealt with a huge number of small business in that time (which are the typical businesses on this forum) in my experience it is very uncommon to see companies set up with different share classes.

Their are clearly good reasons for it to be done in some circumstances but common - no.

Anyway thats no helping the OP here...