Buying Shares in Family Business

qr1

Im getting involved in the family business, im just a director and would like information on how to go about buying shares. How are the shares valued and can they just be transfered? Its a small food company.

dbran

Hi

The valuation of shares in a private company is a very subjective thing and can be based on not only what the company is worth now but also what it is expected to earn and be worth in the future. A lot of the time it appears to come down to basic haggling amount the parties involved. A lot depends on the percentage shareholding you will have in the company as a result of the deal.

A good place to start would be taking a look at the most recent company's accounts and financial statements. As a director you are entitled to see them and I suspect you must have signed them at one point.

The shares can be transfered by means of a stock transfer form. This form needs to be submitted to the revenue if the consideration is more then €1000 so that stamp duty and capital gains tax can be levied and paid.

Regards

DB

antoinolachtnai

This is probably really a question of governance and succession rather than just the accounting part of it.

You really need to look at the whole future of the business. Who is going to own it? Who is going to run it? How are the current shareholders (your older relatives) going to get money out of the business for their retirement?

Obviously more than half the answers to these questions will come from the existing shareholders. At the end of the day, how the shares are valued and transferred is up to the shareholders.

There is lots written about family businesses. It is worth reading around the subject. I will dig up some pointers for you if it helps.

Kingkong

You should look at the tax side of things aswell such as seed capital relief, retirement relief if the folks are looking at passing on the business.

lanternman

qr1 wrote: »

Im getting involved in the family business, im just a director and would like information on how to go about buying shares. How are the shares valued and can they just be transfered? Its a small food company.

Are you a family member?

If this is the case you might have an opportunity to buy them at book value? as for transferring the shares it depends on who you are buying the shares from! Are you buying them from an existing shareholder or from the company?

If I were you I would be looking at past accounts and seeing what the dividends were. So say 10 cent was paid to every share that means it would take 10 years for me to get back what I paid for a share at €1 euro. To be that is not a great return so I might no bother buying the shares unless I believed that something big was about to happed that might increase future dividends or even someone coming in to by my shares at sat €5.

antoinolachtnai

10 percent return would not necessarily be too shabby at all, if there were any growth prospects in the business. It also depends on the debt structure (i.e., whether the company owes a lot of money) and the riskiness of the venture (the riskiness of a chain of smoothie shops is very different from that of an established restaurant with a long lease).

Also how you would participate in the business and help it succeed is a consideration - it's not a passive investment -.