Limited company rules and legality relating to share ownership and assets

bitsbobsthisthat69

The initial start-up capital of a limited company, how does that get taxed? Or is that tax-exempt?

Also if there are 2 shareholders in a limited company with 1 share each, if the company wants to sell land, would both of the shareholders have to agree, and can you make it through the articles that the director cannot sell land/assets? Also if the company has sold the land and then holds say £30000, if it gets wound up voluntarily would the shareholders get £15000 each if it has no debts even if the value of the shares are only £1 each?

mybestattempt

Generally it's money or other assets coming out of a company which triggers a tax charge.

My understanding is that the articles of association is essentially a contract between the shareholders and the company.  A director does not need to be a shareholder but a shareholder can also be a director. The articles set out the rights of the shareholders and duties of a director.

How the shares and voting rights attached to them are held, will determine who has control of the company and thus the power to make decisions and/or delegate them.

In your scenario, assuming all the proceeds of the land sale were in the company bank account, there were no other assets or liabilities
(including tax due from the company ) then each shareholder would get half the bank balance on voluntary liquidation.

The amount each shareholder receives is a distribution is taxable upon each of them as individuals.

I would advise seeking proper professional advice to ensure any land sale by a company followed with voluntary liquidation is handled correctly.

bitsbobsthisthat69

mybestattempt said:

Generally it's money or other assets coming out of a company which triggers a tax charge.

My understanding is that the articles of association is essentially a contract between the shareholders and the company.  A director does not need to be a shareholder but a shareholder can also be a director. The articles set out the rights of the shareholders and duties of a director.

How the shares and voting rights attached to them are held, will determine who has control of the company and thus the power to make decisions and/or delegate them.

In your scenario, assuming all the proceeds of the land sale were in the company bank account, there were no other assets or liabilities
(including tax due from the company ) then each shareholder would get half the bank balance on voluntary liquidation.

The amount each shareholder receives is a distribution is taxable upon each of them as individuals.

I would advise seeking proper professional advice to ensure any land sale by a company followed with voluntary liquidation is handled correctly.

So it does not matter what the value of a share is then?

mybestattempt

As long as the share holdings were equal, for instance each shareholder held one £1 ordinary share, then the distributions should be equal and total the capital held by the company when it is liquidated.

Grumpy_chap

bitsbobsthisthat69 said:

The initial start-up capital of a limited company, how does that get taxed? Or is that tax-exempt?

Also if there are 2 shareholders in a limited company with 1 share each, if the company wants to sell land, would both of the shareholders have to agree, and can you make it through the articles that the director cannot sell land/assets? Also if the company has sold the land and then holds say £30000, if it gets wound up voluntarily would the shareholders get £15000 each if it has no debts even if the value of the shares are only £1 each?

If the nominal value of the shares is £1 and there are two shares, how did the start-up capital get introduced to the Ltd Co.?
Was that introduced as a Director's Loan (from the Director to the Ltd Co.)?  Was it from only one of the Directors, or from both equally?  The initial value of the loan can be repaid and does not create a tax liability.  The rules are a bit more complex if the Ltd Co. is repaying interest to the Director / Shareholder.

How much of the £30k is above the purchase price of the land?  The Ltd Co. will need to report that gain via the accounts for the period and then subject to corporation tax.  Dividends can only be paid after corporation tax has been settled.  Voluntary liquidation cannot be concluded while there are debts outstanding and HMRC will consider the corporation tax to be a debt.

How long has the Ltd Co. been trading?
Can the Accountant that the Ltd Co, has used over the years advise?  If there is no established Accountant, it is probably wise to engage one.

Savvy_Sue

Agreed, proper advice is needed, and an understanding of the original setup of the company. 

Bookworm105

bitsbobsthisthat69 said:

The initial start-up capital of a limited company, how does that get taxed? Or is that tax-exempt?

Also if there are 2 shareholders in a limited company with 1 share each, if the company wants to sell land, would both of the shareholders have to agree, and can you make it through the articles that the director cannot sell land/assets? Also if the company has sold the land and then holds say £30000, if it gets wound up voluntarily would the shareholders get £15000 each if it has no debts even if the value of the shares are only £1 each?

urgently seek professional advice, you clearly don't understand even the most basic aspects of running a Ltd

DullGreyGuy

mybestattempt said:

Generally it's money or other assets coming out of a company which triggers a tax charge.

Corporation tax has nothing to do with money coming out of the company. 

bitsbobsthisthat69 said:

The initial start-up capital of a limited company, how does that get taxed? Or is that tax-exempt?

Also if there are 2 shareholders in a limited company with 1 share each, if the company wants to sell land, would both of the shareholders have to agree, and can you make it through the articles that the director cannot sell land/assets? Also if the company has sold the land and then holds say £30000, if it gets wound up voluntarily would the shareholders get £15000 each if it has no debts even if the value of the shares are only £1 each?

How has the start up capital been raised by the company? Debt isn't revenue so getting a directors or bank loan won't cause corporation tax to be paid. If you were to get a bank loan and then use that to provide dividends (eg if you have illiquid/paper profits) then the dividends would be considered for personal tax of the receivers. 

The articles of association should cover what is within the power of the Director(s) and what requires a member vote. Given the 50/50 split of shares it would be sensible for them to also consider what to do with a split decision, saying everything has to be a unanimous decision is going to be a quick way into deadlock.

When a company is dissolved then any remaining value in the company after all creditors have been paid etc is distributed across the shareholders irrespective of the nominal value of the shares. 

mybestattempt

DullGreyGuy said:

mybestattempt said:

Generally it's money or other assets coming out of a company which triggers a tax charge.

Corporation tax has nothing to do with money coming out of the company. 

Perhaps it wasn't clear but I wasn't referring to just corporation tax.

Money or other assets moving out of a company may trigger charges to other heads of duty not just for the company, but also to the recipient.

In this particular case, the disposal of the land (asset moving out of the company) may have given rise to a gain/profit chargeable on the company and then distributions on liquidation giving rise to income taxable shareholders.

JennyDavis

The nominal value of the shares (£1 each in this case) is irrelevant to the distribution of remaining assets. The distribution is based on the proportion of shares held by each shareholder. pffcu knows everything about it.