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Paying Out a Departing Shareholder

If you first instinct is that this needs to come from the pocket of the continuing shareholder(s), you need to be aware that Companies Act 2006 made it a lot easier for the pay-out to come from the company, itself.

It used to be that you needed a court order to get permission for a company to purchase its own shares.  This is no longer the case.

There are some technical criteria that need to be met in order for the purchase to qualify as a capital distribution in the hands of the recipient.  Even if it suits you to get the company to pay, it may not suit the departing shareholder that the consideration he receives for his shares is subject to income tax.

If the tax circumstances suit, then you are looking at very compelling advantages using company funds and also the potential to use share premium and revaluation reserves to make the purchase from, which otherwise might be troublesome to take ordinary dividends from.

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