Selling shares in a Limited Company

Discussion in 'General Business Forum' started by Nicholas Boyce, May 16, 2019.

  1. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Hello, I'm new to UK Business Forums and looking for some advice please, if anyone can help.

    I'm looking to buy 50% of the shares in an existing Limited company from the current owner, who is the sole Director. He has 50 x ordinary shares and I am wanting to buy 25 x from him.

    My understanding is that it's a straightforward process, whereby we fill out SH04 'Notice of Sale of Shares' for Companies House, I pay the current owner the sum we have agreed and he (as the transferee) pays the 0.5% Stamp Duty to HMRC. Then we both sign a Shareholders Agreement.

    Have I missed anything please? Do we also need to complete a PSC01 'Person of Significant Control' for Companies House? I expect it's up to him to declare the sum I paid him to HMRC, apply for Entrepreneur's relief, etc. as part of his personal tax return...?
     
    Posted: May 16, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #1
  2. Noah

    Noah UKBF Ace Free Member

    1,096 272
    Yes, PSC notification required.

    More importantly, does the Shareholders Ageement (which I would think you would sign BEFORE transfer) include mechanisms to resolve disagreements? A simple 50% - 50% split assures trouble otherwise, assuming you are also taking a role as a Director.

    If you DON'T take a role as Director, you may find your investment does not work out how you think it should.
     
    Posted: May 16, 2019 By: Noah Member since: Sep 1, 2009
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  3. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Thank you Noah, yes, the Shareholders Agreement does include mechanisms to resolve disagreements. And I will make a point of us signing this before transfer, which is a very good point!

    And I will be taking a role as a Director and going to work in the business myself full-time.

    Is there anything else, you can think of, please?
     
    Posted: May 16, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #3
  4. Clinton

    Clinton UKBF Big Shot Full Member

    3,963 1,368
    Nicholas, the mechanics are fairly simple and as you describe in the OP (and there probably isn't even stamp duty involved if the purchase is small enough).

    But, goodness me, you're buying shares in a business but without taking proper legal advice first?

    It's okay if it's a small amount of £25 for 25 shares, but if you're paying any significant amount get a proper Share Purchase Agreement drawn up! Yes, it'll cost some money for a decent lawyer!
     
    Posted: May 16, 2019 By: Clinton Member since: Jan 17, 2010
    #4
  5. billybob99

    billybob99 UKBF Regular Free Member

    893 166
    It's all simple straight forward stuff.

    Buy yourself a few XL pizzas instead.
     
    Posted: May 16, 2019 By: billybob99 Member since: Apr 23, 2013
    #5
  6. MikeJ

    MikeJ UKBF Big Shot Free Member

    5,593 1,590
    Isn't it usual for the buyer to pay the stamp duty, not the seller?
     
    Posted: May 16, 2019 By: MikeJ Member since: Jan 15, 2008
    #6
  7. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Thank you. From what I read it's the TRANSFEREE (is that the seller, or the buyer...?) that pays the Stamp Duty. But, it's only in the order of £300, so I'm sure he and I can work it out...
     
    Posted: May 17, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #7
  8. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Thank you. The purchase price I'm paying is £70,000. I've spoken to lawyers and I've been working on the due diligence for over 7 months now, so there isn't much I don't know about the business.

    I don't want to complicate things and spend money on lawyers unnecessarily. There seem to be some great resources on-line for shareholders agreements. If I follow the process and answer the questions and answers from a reputable UK based law company, then a shareholder agreement document is produced at the end.
     
    Posted: May 17, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #8
  9. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Thanks - and I could probably get pizzas for life, for £70,000! But they won't provide me an income and pay my mortgage :)
     
    Posted: May 17, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #9
  10. Clinton

    Clinton UKBF Big Shot Full Member

    3,963 1,368
    Whatever the DD and shareholder agreement, there needs to be a decent SPA.

    But I've given you my advice.
     
    Posted: May 17, 2019 By: Clinton Member since: Jan 17, 2010
    #10
  11. Mr D

    Mr D UKBF Legend Free Member

    13,757 1,507
    Shares do not provide an income unless the company issues a dividend. Which it does not have to do.
    Always a risk.
     
    Posted: May 17, 2019 By: Mr D Member since: Feb 12, 2017
    #11
  12. NickGrogan

    NickGrogan UKBF Ace Free Member

    1,766 382
    oh dear

    Oh dear


    Oh Dear



    It's like a slow-motion car crash. You know what's going to happen but can't look away
     
    Posted: May 17, 2019 By: NickGrogan Member since: Nov 15, 2012
    #12
  13. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Thank you. The other Director and I are in agreement regarding dividends. We are going to be 50% shareholders each and will take the same dividends each, obviously. We have a forecast and we know what dividends we can expect to take, without touching reserves.
     
    Posted: May 17, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #13
  14. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Wow... Sounds very 'glass half-empty' and without respect for the work carried out on this opportunity, nor for my own business acumen. Please explain what your assumptions are...?
     
    Posted: May 17, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #14
  15. Mr D

    Mr D UKBF Legend Free Member

    13,757 1,507
    You are in agreement now. Its when you aren't in agreement things get problematic.
    Not every business ends that way but there are plenty on the forums over the years where the directors have ended up disagreeing. And the business falls apart unless one quits.

    Even brothers, best friends, husband and wife directors can end up disagreeing.
    And need agreement in the future to run the business.

    Its the risk every business has with 2 or more people needing to agree things.
     
    Posted: May 17, 2019 By: Mr D Member since: Feb 12, 2017
    #15
  16. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,189 2,058
    That's the biggest load of cobblers shareholders agreements are special to your needs and must be legally enforceable when you need them, relying on secondhand copies from the internet should not be a choice, get proper legal advice and let them make up the agreement, they are experts and you may well find that if you ever need the agreement it worked out very cheap in the long run, but then what have you got to lose only £70K
     
    Posted: May 17, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #16
  17. Noah

    Noah UKBF Ace Free Member

    1,096 272
    To answer the easy question : the transferee is the buyer - the seller is the transferer.
     
    Posted: May 17, 2019 By: Noah Member since: Sep 1, 2009
    #17
  18. NickGrogan

    NickGrogan UKBF Ace Free Member

    1,766 382
    1) 50/50 businesses rarely succeed if you disagree there is no way to resolve or move forward. This forum is full of failing businesses in exactly this situation.

    2) 2 directors, so again no way to resolve issues. You are paying £70,000 for a job.

    3) You admit after 7 months that you don't know everything about the business, but you're still investing. You don't appear to have taken outside advice about the questions that you haven't thought to ask, never mind answered. For example, has the company got or ever had any staff? Contractors? Customers? Are you indemnified against all current and potential claims from these people? #metoo, etc.

    4) You want to invest £70k and use an online tool with no comeback to cover the shareholder agreement.

    OK, and when the other director decides he wants to build value and take no dividends for the next 5 years, then what?

    He decides to go and find himself, disappearing for 3 years, still taking a salary and dividends. Then what?

    FYI, not all shares get the same dividends and voting rights. It's quite possible to own 50% of the share, by number and have no voting rights and no right to dividends.
     
    Posted: May 17, 2019 By: NickGrogan Member since: Nov 15, 2012
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  19. Nicholas Boyce

    Nicholas Boyce UKBF Newcomer Free Member

    18 2
    Thank you Noah
     
    Posted: May 17, 2019 By: Nicholas Boyce Member since: May 16, 2019
    #19
  20. Noah

    Noah UKBF Ace Free Member

    1,096 272
    Stick around - you are receiving some (some) good advice, although somewhat brutally packaged. However, business is brutal - if you can't take the packaging here, you'll find business in action absolutely frightful.

    I do think some advice could be delivered more constructively, but you're getting it for free (which is what it may be worth) and many advisers haven't necessarily the time or the will to be diplomatic.
     
    Posted: May 17, 2019 By: Noah Member since: Sep 1, 2009
    #20