By Toby Cotton on Small Business – Advice and Ideas for UK Small Businesses and SMEs
There may be instances where a shareholder might want to exit the company. This could be due to losing interest or retiring and would need the other shareholder to buy out their shares and take full control.
The first consideration if you want to buy out a fellow shareholder is to check the articles of association and shareholder agreement to make sure that both parties understand the process and any pre-existing terms for such shareholder exits or prohibitive clauses for share buybacks. You would need to place a reasonable value on the departing shareholder’s shares, and it is often advisable to ask your accountant to provide an independent valuation.
For ease in this article, we will use a simple trading company with 50:50 shares between two shareholders. The 50 shares are valued at £500,000 so the total value of the company is £1m.
>See also: Paying dividends to directors
There are a number of options available, each with different implications and tax consequences:
Company buyback of shares
In this case the company would pay the departing shareholder £500,000 to buy back their 50 shares, which would leave the remaining shareholder with