Transfer of wealth within a company

JohnnyKq

Can someone help me understand whether an income tax liability arises or CGT or none when assets within a company are transferred from one shareholder to another.

company A has €100K of assets.
It has 10 unrelated shareholders with 1 share each.
4 shareholders want to exit.
6 remaining shareholders vote to pay the 4 leaving €8K per share and not the €10K per share the assets in the company are worth.
What would be the tax implications for the 6 remaining shareholders who's shares are now worth 11,333 each as a result of the 4 exiting at below asset market value?

barneystinson

JohnnyKq wrote: »

Can someone help me understand whether an income tax liability arises or CGT or none when assets within a company are transferred from one shareholder to another.

company A has €100K of assets.
It has 10 unrelated shareholders with 1 share each.
4 shareholders want to exit.
6 remaining shareholders vote to pay the 4 leaving €8K per share and not the €10K per share the assets in the company are worth.
What would be the tax implications for the 6 remaining shareholders who's shares are now worth 11,333 each as a result of the 4 exiting at below asset market value?

Your question isn't framed clearly enough to get an answer.

Are you talking about the company's money being used to buy back (and cancel) the shares of the existing shareholders, or something different?

A shareholding in a private company will normally be subject to a discount on valuation, reflecting lack of marketability, and a minority shareholding would be further discounted to reflect lack of control and inherent difficulty of realising its value to the holder, so if anything the valuation you've indicated is on the high side.

JohnnyKq

barneystinson wrote: »

Your question isn't framed clearly enough to get an answer.

Are you talking about the company's money being used to buy back (and cancel) the shares of the existing shareholders, or something different?

A shareholding in a private company will normally be subject to a discount on valuation, reflecting lack of marketability, and a minority shareholding would be further discounted to reflect lack of control and inherent difficulty of realising its value to the holder, so if anything the valuation you've indicated is on the high side.

Thanks barneystinson for responding.

Sorry on my wording, I am not very technical on this type of stuff.

The only asset in the company is quotes shares. The company will sell some of the quoted shares to get cash to payout the exiting shareholders.
Instead of them getting €100 per share they would gett €80 per share to get out. Assume no company taxes or costs.

Thanks again for helping.

barneystinson

JohnnyKq wrote: »

Thanks barneystinson for responding.

Sorry on my wording, I am not very technical on this type of stuff.

The only asset in the company is quotes shares. The company will sell some of the quoted shares to get cash to payout the exiting shareholders.
Instead of them getting €100 per share they would gett €80 per share to get out. Assume no company taxes or costs.

Thanks again for helping.

You need to get professional advice on this.

What you're describing there will be treated for tax purposes as a distribution (dividend) by the company to the departing shareholders. That means income tax (and dividend withholding tax).

JohnnyKq

barneystinson wrote: »

You need to get professional advice on this.

What you're describing there will be treated for tax purposes as a distribution (dividend) by the company to the departing shareholders. That means income tax (and dividend withholding tax).

Thanks.
That was what I was previously told also.

FM252

Sorry for hijacking the thread a bit. But I am just curious in regards to the article that JohnnyKq posted from the clare echo in the kerry co op thread.


I do not understand why the chairman of the co-op is promoting the redemption scheme even though from what I understand if the JV goes ahead, dry shareholders after a haircut will be taxed under CGT.

Is there something I am missing? Is he just talking to non dry shareholders whose income tax could be 30 percent? Why would he be actively promoting this option still?

Is there a scenario where even if a JV is established that dry shareholders won't get plc shares or wont be treated under CGT?

I had just presumed dry shareholders are waiting for what the haircut will look like and PLC shares and CGT were a given once JV is accepted.

Thank you for any help

barneystinson

FM252 wrote: »

Sorry for hijacking the thread a bit. But I am just curious in regards to the article that JohnnyKq posted from the clare echo in the kerry co op thread.


I do not understand why the chairman of the co-op is promoting the redemption scheme even though from what I understand if the JV goes ahead, dry shareholders after a haircut will be taxed under CGT.

Is there something I am missing? Is he just talking to non dry shareholders whose income tax could be 30 percent? Why would he be actively promoting this option still?

Is there a scenario where even if a JV is established that dry shareholders won't get plc shares or wont be treated under CGT?

I had just presumed dry shareholders are waiting for what the haircut will look like and PLC shares and CGT were a given once JV is accepted.

Thank you for any help

Ah here!

Ye are talking about a very specific situation (that I personally know practically nothing about). I took the OP's question at face value as a general "what if" question about a relatively straightforward (if unusual) situation.

Covit

Anyone know why they took a hammering today on the stock exchange , down to € 102 at one stage

JohnnyKq

barneystinson wrote: »

Ah here!

Ye are talking about a very specific situation (that I personally know practically nothing about). I took the OP's question at face value as a general "what if" question about a relatively straightforward (if unusual) situation.

Thank you barneystinson. You answered the question as asked it.
I opened a thread re Kerry Co op on this topic but nobody responded.
Your answer on transfer of wealth in a "Normal" company was as I was told before, ie Income tax.

JohnnyKq

Covit wrote: »

Anyone know why they took a hammering today on the stock exchange , down to € 102 at one stage

Would it be over the sale of the consumer foods business or dairy negotiations going poorly I wonder?

barneystinson

JohnnyKq wrote: »

Thank you barneystinson. You answered the question as asked it.
I opened a thread re Kerry Co op on this topic but nobody responded.
Your answer on transfer of wealth in a "Normal" company was as I was told before, ie Income tax.

You didn't ask a question about a transfer of wealth though, that's how you're choosing to view / couch it.

It's the buying out of the interest of a group of departing shareholders. If bargained at arm's length, there shouldn't be any transfer of wealth. As a recent poster has pointed out, the price of a plc's shares can fluctuate widely, so settling on a price that transfers wealth one way today, could be looked at next week as transferring wealth the other way.

FM252

Covit wrote: »

Anyone know why they took a hammering today on the stock exchange , down to € 102 at one stage[/QUOTE

Cant remember exactly. Article on farmers journal

But some report stating Kerry Groups acquisitions strategy is a disaster and the group that wrote the report are short selling the stock. Report was quite damning. D'ont know how realistic it is though

FM252

barneystinson wrote: »

Ah here!

Ye are talking about a very specific situation (that I personally know practically nothing about). I took the OP's question at face value as a general "what if" question about a relatively straightforward (if unusual) situation.

Its not that specific at all. Just why would co -op be telling people to use redemption scheme when they are about to enter a JV that gives another avenue to cash in co op shares.

Just struck me as odd and got me wondering maybe not all is what it appears when it comes to JV

JohnnyKq

barneystinson wrote: »

You didn't ask a question about a transfer of wealth though, that's how you're choosing to view / couch it.

It's the buying out of the interest of a group of departing shareholders. If bargained at arm's length, there shouldn't be any transfer of wealth. As a recent poster has pointed out, the price of a plc's shares can fluctuate widely, so settling on a price that transfers wealth one way today, could be looked at next week as transferring wealth the other way.

Without the complications of a movement in PLC price, let's keep simple for now, the only question was if the benefitting remaining shareholders were at risk of income tax from shortchanging the exiting shareholders.
That's all.
The case study management here are well able to find ample problems to keep this post going with more and more problems for years!!!