Purchase of own shares

Wrenchie

Hi all, I'm hoping someone can help me out here?!

I have a client who is a director of a limited company. There were 2 directors but they had a falling out and now do not speak to each other at all. (Honestly they are like a couple of old women!) Director A 'resigned' Director B without his knowledge last year!!

They both own 1 share in the company which represents 100% of the issued shares. Director A wants to buy Director B's shares and asked me to offer him £1,000 for the share. Director B is happy to sell but now Director A says he wants the company to buy the share and not him personally.

Now to be honest I am struggling with this. i have never had to deal with a company buying its own shares back and was hoping that someone would let me know what I need to do and what the tax consequences are?

The last set of accounts dated 31 October 2008 (which was for a 1 month period as the company was dormant until 1 October) shows the shareholders funds at a little over £300.

Many thanks

whiterose

A private company can purchase its own shares and usually this is done out of profit. If there is insufficient profit then it is allowable to make the purchase out of capital, with certain caveats. All shares purchased must be cancelled immediately. You should do some reading round the subject - there's a bit in Frank Woods for a start. You will need to complete form SH03 from Companies House (which needs to go to HMRC for stamp duty to be paid if the amount paid is over £1,000) and SH06 to cancel the shares. You'll need to do a board minute, etc,.

whiterose

And another thought is that it would be so much simpler if the director bought the shares personally - if he needs the funds then he could use his DLA??? Try to persuade him!

Wrenchie

Thanks whiterose. I have tried to talk him into buying them himself. He is worried that Director B will back out of the sale once he has paid him, and if the company buys the shares at least Companies House is notified straight away rather than waiting for the next Annual Return to be submitted! I'll have another go at him, I would be happier if he bought the shares.

deanshepherd

I would quote him £3k in accountancy fees to deal with a share buy back. That might help persuade him.

Wrenchie

Brilliant! I might try that. Might get a holiday this year then