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Thread: Buying out another shareholder in a private limited company

  1. #1

    Default Buying out another shareholder in a private limited company

    Hello,

    I have a small business and there is one other shareholder apart from me. He would like to be bought out. I do not have the money. However the business has some reserves and is expected to make a profit in the coming months. He has asked for this to be used to buy him out.

    The money will come from the company account but he will sell his share to me.

    Is this legal or not? The company paying him off and I getting full ownership of it. No money will come from my personal account.

    If it is not appropriate please suggest other ways in which he can be released from the firm.

    Your assistance and advice in this matter will be much appreciated.

    Thanks.

  2. #2

    Default

    What you are describing is a corporate redemption. It is perfectly legal, although you need to consider the tax consequences. There are several ways to accomplish what you want to do. You should talk to your company's attorney to come up with a structure that works for both of you.

  3. #3
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    First know this isn't my area of expertise. You really want to ask an attorney, or maybe an accountant.

    Having said that I think the situation you describe is fine. If I understood correctly, the business is just the two of you. If the business buys him out, it's just you who owns the business. You do want to make sure there's paperwork to indicate the money the business is paying him is to buy him out. His name should be removed from any ownership documents. Again I would suggest asking someone who knows the legal system where you live and will make sure all the t's are crossed and all the i's are dotted.

    I don't think having the business by him out is a problem. Just make sure you get the paperwork taken care of.

    Edit: Nevermind. I see you have received advice from an attorney. Guess we were posting at the same time.
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