The price is right, but...

« Back to News

Published: 25 Jan 2018

As Bruce Forsyth would say “the price is right” but……..

Imagine that the time is right and and you've made the decision to sell your company. This may be due to either:

  • The wish to retire or start a new business venture or 
  • You and your fellow director/shareholders wish to go their separate ways

It is quite often and natural in business life that the original basis on which business partners came together no longer holds true. Particularly, where a company has grown, the business skills normally move from that of the front line in dealing with the customer/client to those of management and administration. For instance, a brilliant salesman who is MD is not necessarily the right person to be in charge of a team of say 10-50 employees.

It's the changing dynamics that often cause this tipping point. So, an offer is made for the shares of an outgoing shareholder/director that is agreed in principal.

But, what happens if the continuing shareholders do not have sufficient funds to pay for those shares?

If the company is profitable, has sufficient reserves and cash in the bank, the company, as opposed to the remaining shareholders, can buy back the shares using its own resources.

Even where sufficient reserves or cash are not available to cover the full purchase price, finance can be raised by a new issue of shares to the remaining shareholders in order to bridge the gap.

In both cases correct procedures in company law need to be followed in order to achieve these objectives.

If you would like further information on these matters contact David Cane at [email protected] or phone 0330 122 8450 or 07749 080 806.

David Cane advises on the valuation of private company shares and exit strategy.