Selling a business (Ltd company)

[vbr85]

hi there

this is my first post (second to be honest), hope to post in the right place

Me and my business partner would like to sell our Ltd company which owns a small coffee shop, we are 50% each share holders, we never sold any business so we dont really know how it works.

we had an offer of £45000, my question is...how much taxes we have to pay on this £45000?
how does it work?

if someone is going to answer, please keep it simple...i dont understand any of "financial terms"

Thanks

 

[Philip Hoyle]

First thing and most fundamental is whether you, personally are sharing your shares in the company, or whether the company is selling the trade.

Very few buyers will want to buy someone else's company - they'll want the trade only.

You, personally, would probably be better off selling the shares.

So that point alone needs negotiation as it will greatly affect tax for both buyer and seller so the agreed price will almost certainly be different for each scenario.

 

[vbr85]

Thanks Philip

Yeah we are selling the trade!
what would be the difference between selling the shares and selling the trade?
If we are selling the trade, basically this £45000 are for my Ltd like a profit?so we should pay taxes on it like we are doing every year? right?
and if we just sell the shares?

Thanks! and thanks for you patience

have a nice day

 

[Clinton]

It's not called selling the trade, it's selling the assets

There are a million different way this cake could be cut. You could sell assets or shares or part shares, you could take a percentage of the negotiated price in the form of a salary post completion. You could do the transaction near the year end and split it over two financial years to take advantage of multiple personal allowances (and CGT allowance). But you're getting way, way ahead of yourself.

we had an offer of £45000, my question is...how much taxes we have to pay on this £45000?

Who is the offer from? Someone in the family? A customer of yours? Someone else?

This is significant because there's a clever scam happening nowadays ... and it starts with an offer to buy the business.

 

[Gareth ACA Accountant]

If it were me I would try to encourage them to purchase the shares. You will pay capital gains tax (CGT) on selling the shares as individuals and by the sounds of it, only pay 10% on the gain.
You are allowed to make £11k on gains each year each before you pay CGT. Lets assume your gain is the full £45k. If there are two of you that means a gain each of £11.5k (£45k means 22.5k each, less the £11k tax free part). At 10% that means tax of £1.1k.

Its much more complicated than this and you may be able to reduce this further but that's how it works as basic.

If you were to sell the trade and assets of the company, the company pays corporation tax @20% on the £45k gain. THEN when you wind up the business you would suffer CGT again - its called a double tax trap. There is a relief - disincorporation relief that can reduce this further.

My main point here is that although you want simplicity, that tax code is complicated as hell and there are so many options available to that you must must must take advice. It doesn't need to be expensive, but they need to know what they are doing. You should find that any fees that you pay are easily offset by the tax saving that the accountant could give you.

The other point I should make is that you need people "on your side" when undertaking the sale. Most sales involve something called "Waranties and Indemnities" - its an area where you can get totally scewed over if not adequately represented - you may find a claim coming to you 3-4 years down the line that could easily be avoided.

For peace of mind and tax saving - really - pay for advice. As a solicitor once said to me:
Good advice is expensive - but bad advice is even more expensive! This is one of those occasions I'm afraid!

 

[Clinton]

Good post, Gareth. Don't forget, there's also Entrepreneurs' Relief.

 

[SteveHa]

For the record, CGT exemption is £11,100, not £11,000.

 

[vbr85]

Back again
I tried to find any information about it but to be honest i couldn't... so im asking your help again.

Ill make a long story short...

Basically I'm selling (trying to)my business (coffee shop) to one of my old staff....me, the landlord and the new tenant agreed on everything (rent, new lease, personal guarantees from the new tenant etc etc) this was on December 2016.
So after that we had to go through our lawyers (mine, new tenant and landlord's) and now the nightmare starts.
First we found out that on the property there is a mortgage so we should ask the bank the consent to sell the business.
The first step was to ask formally our landlord consent to sell the business ...so we asked and The landlord's lawyer replied our emails (cos we sent more than one ) after a month (1 month)...ok...so now we thought should be easy but not....again the landlord's lawyer was really slow and she replied almost after another month.
So after 4 months, today we had the consent to sell the business from our landlord, now we need to wait for the bank, where the landlord has the mortgage, if its ok for them.
So i think another few months are gonna pass.
My question is....how long time usually takes to sell a business? ( a coffee shop in this case) more than 6 months? Is this a reasonable time? Because i think that is taking too long! When i opened the shop in one month we had everything ready ( 6 hours of a lawyer's work) why now we need more than 4 months?
If the new tenant is gonna call out can we ask for a compensation to someone? Landlord's lawyer for her slowness? Replying 2 emails in 2 months...

Many thanks

 

[Clinton]

I tried to find any information about it but to be honest i couldn't...

You've tried to find information about ... what? There have been numerous helpful replies to your OP but you did not return to the thread to thank or even acknowledge them.

To answer your question, I've had transactions complete in a matter of days, not months. But then I've done this a few times before and know where to look for potential road blocks and how to overcome them. Landlords' lawyers are often one major area for delays!

If the new tenant is gonna call out can we ask for a compensation to someone? Landlord's lawyer for her slowness? Replying 2 emails in 2 months...

You can ask for whatever you want but, no, you're not entitled (legally or otherwise) to any compensation for the delays.