Selling Inherited Business Shares - Issue

daveshoelace

Hi guys, I hope this is the best sub-forum for this particular query.

My Father was a company director in a family business and had 100 of 600 shares in the business. He passed away in 2010 and the shares went to my mother.

As it was a family business, my Aunt & Uncle started to pay her £1,000 a month to tide her over while they decided what to do with regards to making an offer for her shares. That took over a year.

The £1k a month she was given 'as a wage', it wasn't referred to as a dividend, or anything else for that matter. She was basically given a cheque once a month, no contracts were signed or anything formally agreed/explained to her.

Today she was made an offer to sell the shares based on a valuation of £34,000 - however the actual offer made was £22,000, because she had already been paid £12,000 in monthly payments. When she said she didn't want to sell, they said to her that she currently owes them £12,000 instead (Not nastily, they didnt insist she paid it or anything, just stating her current position).

At no point was anything said to the effect that the money she was being paid was effectivley being taken out of her share value, she was led to believe what she was receiving was a wage/gift/dividend. I think they are now using this 'money owed' as a pressure tactic to sell.

Just wondering what everyones thoughts are on this £12k? I think she has been fundamentally misled, she would never have spent in the way she did if she believed she was taking equity out of her shares.

On a separate note, the valuation given is much smaller than one given last year, and the property valuation of the company is laughable (Valued at £75k in the share report, valued at about £180k about 18 months ago).

Its tough, especially as it is a family business, but also because nobody is obliged to make any offers at all. I must admit I am really unsure about what we should do next, and what to make of this 12k she 'owes'.

Would love to hear some opinions from people with experience.

pjclar02

Hello there

Regarding the £12k - I think the first thing to investigate is whether any dividends have been declared by the company since your mother inherited the shares. If they have, your mother would be entitled to a 1/6th share of the dividend (assuming the dividend was declared on her class of share. If the other shareholders have remunerated themselves via dividends, then your mother would be entitled to one too - and potentially the £12k would contribute toward such an entitlement.

Your mother cannot be forced to sell her shares for a price that is not attractive. If she is not happy with £34k then she does not have to sell. However, as a minority shareholder options are limited so she does need to tread slightly carefully as it may be the best offer she gets. That said, I would insist on a third party valuation of the business, and an acquisition at market rate. The business will have had to have changed dramatically to have such a large impact on price since the probate valuation - therefore a good reason would have to be put forward to justify the lower figure.

Hope this is of some help

Annisele

Was she led to believe the £1k per month was a wage, a gift, or a dividend? They're very different things, and lumping them together as a "wage/gift/dividend" is (to me at least) very confusing.

Did the £1k per month come from a cheque drawn on the company bank account, or personally from the account of the aunt or the uncle?

I think pjclar is right, and investigating the dividend situation is likely to be a good first step.

daveshoelace

Thank you both very much for your replies.

No dividends have been paid since my mother inherited the shares.

Sorry for the confusing definition of the payments, I believe the only actual term used may have been 'like a wage'. I believe it was from the company bank account.

I would insist on a third party valuation of the business, and an acquisition at market rate.
Is it easy/affordable to get a third party valuation?
Can you explain what you mean by 'acquisition at market rate'?

Thanks once again

Premier_2

daveshoelace wrote: »

Thank you both very much for your replies.

No dividends have been paid since my mother inherited the shares.

Sorry for the confusing definition of the payments, I believe the only actual term used may have been 'like a wage'. I believe it was from the company bank account.

I would insist on a third party valuation of the business, and an acquisition at market rate.
Is it easy/affordable to get a third party valuation?
Can you explain what you mean by 'acquisition at market rate'?

Thanks once again

If it something 'like a wage', was tax & NI deducted at source.
Did she get a P60 at year end?
Or did you mother declare her £12k annual income that appears to have been paid gross on her annual return?

What exactly did arrive with the cheque for £1k every month?
It would be most unusal for a cheque to be sent without any kind of payment advice.

A look at the company accounts should indicate whether this was considered a dividend, whether it was salary ... or hopefully it will give an indication of what happened to the £12k that otherwise disappeared from the company accounts.

Mistral001

The OP's mother as a director of this firm, should have quite strong powers with regard to inspecting the books of the firm. If she has little financial knowledge I would have thought she could a second opinion from another accontant (not firm's accountant) to look at the books with the consent of the present firm's accountants . It would be confrontational, but quite a bit of money is a stake.

The £1k a month is confusing. Legal advice on this matter is required I think from a solicitor specialising in commercial matters is probably required.

daveshoelace

Premier wrote: »

If it something 'like a wage', was tax & NI deducted at source.
Did she get a P60 at year end?
Or did you mother declare her £12k annual income that appears to have been paid gross on her annual return?

What exactly did arrive with the cheque for £1k every month?
It would be most unusal for a cheque to be sent without any kind of payment advice.

A look at the company accounts should indicate whether this was considered a dividend, whether it was salary ... or hopefully it will give an indication of what happened to the £12k that otherwise disappeared from the company accounts.

It was literally a cheque every month, I presume drawn from company accounts - no P60, no payment advice.

The question of tax etc has not really come up - it should have of course, but as she had just lost my Dad, and the rest of the family their Brother, it was done very informally - hence my use of the word 'gift' to explain the manner of the money being given.

Premier_2

daveshoelace wrote: »

It was literally a cheque every month, I presume drawn from company accounts - no P60, no payment advice.

The question of tax etc has not really come up - it should have of course, but as she had just lost my Dad, and the rest of the family their Brother, it was done very informally - hence my use of the word 'gift' to explain the manner of the money being given.

Well if she has no proof of what the money was for, she probably is liable to repay it to the company.

daveshoelace

Premier wrote: »

Well if she has no proof of what the money was for, she probably is liable to repay it to the company.

I guess one of my main questions really is, as they also seem to have no proof of why they gave her the money, can they really claim it was a loan if Mum claims otherwise?

If someone gave me money, never inferred it was any sort of loan, was given to me 'as an income' - can they really just decide it was a loan after the fact?

(I'm not saying they cant, it just seems to me that it is quite exploitable if they can)

Premier_2

daveshoelace wrote: »

I guess one of my main questions really is, as they also seem to have no proof of why they gave her the money, can they really claim it was a loan if Mum claims otherwise?

If someone gave me money, never inferred it was any sort of loan, was given to me 'as an income' - can they really just decide it was a loan after the fact?

(I'm not saying they cant, it just seems to me that it is quite exploitable if they can)

If someone gave me money I didn't know what it was for, I would ask.

The company doesn't need to specify now what the money was for; they could simply declare it was paid in error and it appears your mother can't prove otherwise. As such she must repay it if the company asks for it back.

Mistral001

The money will be accounted for in the books of the firm. All she has to do is look at them. they cannot keep her from looking at them I would have thought. She is a director afterall.