How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4948
Type Your Tax Question Here...
bigduckontax is online now

Keith,we briefly discussed me selling 50 percent of my

This answer was rated:

Hello Keith,we briefly discussed me selling 50 percent of my company yesterday. You suggested 5 times earnings would be a reasonable figure. Is this based on gross profit. I deem this as being before any salaries,dividends or expenses are taken. Am i correct in this assumption. Also i think it unlikely that my partner could secure sufficient funds to buy my share zlone. My alternative would be to transfer the two properties into a separate ckmpany that we would both own and rent back the properties to the original company. Can we do this legally and without i incurring any tax liabilities. I would then sell tbe goodwill separately at 6 percent per annum? Or sell the whole of the goodwill as a loan against the company but i would not have any security.
Hello, I'm Keith and happy to help you with your question.
As I told you yesterday valuing private companies is a rather esoteric exercise. In your case even more so as you are effectively selling to your partner. However, any share sale price would be based on a valuation of net, as opposed to gross profit. Any juggling of properties within the company would not attract Capital Gains Tax (CGT) at all as that tax regime does not apply to companies. Companies who make gains or losses merely pass them through their trading accounts and are ultimately liable to Corporation Tax (CT). As CT is now 20% it tends to be a better option than an individual paying CGT maybe at 28% which explains their use.
However the boot is on the other foot when the shares are sold or otherwise disposed of and CGT kicks in against the selling shareholder. All the proposals you suggest do not impact on your personal tax position until you come to sell your shares. Fortunately your entitlement to Entrepreneurs' Relief will limit your CGT to a flat rate of 10%.
Goodwill is generally defined as the excess of the selling price over the real value I am at a slight loss as to your intentions when you will sell it separately as the only thing you have to sell is the shares you own; they are your interest in the organisation.
I do hope that I have given you some food for thought. Remember that companies, shareholders and directors are separate legal persons and in general terms never the twain shall meet. This is known as the Veil of Incorporation and is seldom lifted.
Customer: replied 3 years ago.

Hello, and thanks for your patience. We rent the properties

So this income will be considered as part of the company's profit as it appears in the accounts.

to summarise 5 times nett value plus assets x 50%?

will property assets be subje t to 10% as well even though the business in continuing?

I think you are missing the point slightly. Your sale of shares, which legally is your sole interest in the business, would create a liability to CGT, but Entrepreneurs' Relief limits that tax to a flat rate 10% which is better than a poke in the eye with the proverbial sharp stick. Indeed any regular income to the company would be considered part of its contribution to profits.
Your suggestion of 5YP of net profits plus assets at 50% would appear a reasonable base for negotiation. It might be adviseable to retain a professional to reach agreement with your partner to protect both your interests.
You don't actually sell any assets, your sole interest in the company is the shares you hold.
bigduckontax and other Tax Specialists are ready to help you
Thank you for your support.