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bigduckontax
bigduckontax, Accountant
Category: Tax
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A Ltd company with two directors who are equal share holders

Customer Question

A Ltd company with two directors who are equal share holders (1 each) has been running for nine years in the trade of importing and wholesaling in UK. Company is solvent with net value of around £400K
The directors for somehow now gone in to a conflict and reached to point where mutual trust has been lost completely and can not continue trade jointly so they want to pack up and finish the company and split equally. Compnay has got around £250K closing stock. The current assets inc. stock totals to around £530K and Fixed assets around £15K. The current liabilities are appx £137K that includes £80K of director's loan account balance so leaving the net worth of the company appx. £400K
Either of the director is not in a position to buy out each other at one go. Nor the company is in a position to buy out at one go in the event of if any director decides to keep the company.
Can some body advise that what is quickest and most tax efficient way to it?
Also can the company make sale of stock to directors and raise invoice to them?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
At least the two have agreed that to pack up is the way forward. The quickest and easiest way is to sell the company on as a going concern once directors' loans have been repaid if a buyer can be found. Each shareholder then receives 50% of the selling price and is liable to Capital Gains Tax (CGT) on any gain made. Entrepreneur's relief would almost certainly apply which would limit the CGT to a 10% rate after each shareholder has had the gain reduced by their Annual Exempt Allowance of 11K. If a sale at 400K was possible, and I have my doubts as to whether this can be achieved, then that would be 200K each which less 11K leaves 189K @ 10%; tax liability of say 19K.
The second solution is to dissolve the company and appoint a licensed insolvency practitioner (only a licensed insolvency practitioner can be appointed to undertake this) to wind it up. All assets would be sold off, director's loans repaid, dissolution expenses paid and the balance distributed to each shareholder. Any gain made would be subject to CGT as I explained above.
Which is going to yield the individuals the higher return of course I cannot determine. Of the two processes a sale is the quickest and easiest, but finding a buyer may be a difficulty.
I do hope I have shed some light on your problem and have shown you a way forward.
Customer: replied 2 years ago.

Also can the company make sale of stock to directors and raise invoice to them?

The above question raised earlier awaits answer.

Expert:  bigduckontax replied 2 years ago.
Yes, that is no problem, but the absence of stock might preclude a sale to a third party. I am sorry that I missed that additional point.
I do hope I have covered everything in your question. Don't hesitate to come back if you are in any doubt.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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