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To be specific, my wife and are equal partners in our limited company. On paper it says we have one share each. We now want to sell 10% of our company to a third party. How does that work in terms of the existing share status?

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Mike
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4 Answers4

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Simple: Do a stock split. Each 1 Ordinary share now = 100 Ordinary shares (or 100,000 or whatever you choose). Then sell 20 (or 20,000) of them to your third party.

(Stock splits are fairly routine occurrence. Apple for example has done several, most recently in 2014 when 1 share = 7 shares).

Alternatively you could go the route of creating a new share class with different rights, preferences etc. But this is more complicated.

marktristan
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There are 2 basic ways to have someone buy partial ownership of your company:

  • They can buy shares that you already own. This means they will give cash to you personally, and that if you sold the shares for more than you bought them for, you will likely pay tax on that gain. [Splitting your stock, as referenced above, and then selling some of that stock will be a variation on this].

OR

  • They can buy new shares directly from the company. This means they will give cash to the company, and that cash can be used by the company for additional investment. It is likely that there are no immediate tax consequences from this method. You may still need to do something like a stock split in order to have new shares offered to your partner not outnumber your own shares in votes.

If they buy shares that you already own, then their shares will have the same rights as yours (same voting rights, same dividend rights, etc.). If they buy shares newly created from the company, they could be either identical shares to what you already own, or they could be a new class of shares [you may need to adjust the articles of incorporation if you did not plan ahead with multiple share classes].

You really need to talk to a lawyer & tax accountant about this. There are a lot of questions you need to consider here. For example: do you want to use the money in the business, or would you rather have it personally? Are you concerned about losing some control of how the business is run? What are the short term and long-term tax consequences of each method? What does your new partner want in terms of their share class?

The answers to these questions will be highly valuable, and likely worth much more than the fees you will need to pay. At the very least, you will likely need a lawyer and accountant anyway to ensure the filings & taxes are done correctly, so better to involve them now, rather than later. There are many other situations to consider here, and an online forum is not the best place to get advice that might put you in a sticky legal situation later on.

Grade 'Eh' Bacon
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Do a share split. Your initial 1 share each becomes 10 (or 100) shares each, then you can sell/gift/etc shares as needed.

pojo-guy
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You actually have a few options. First, you can do a share split and then sell an equal number of shares from both you and your wife to maintain parity. Second, you can have the company issue additional shares/convert shares and then have the company sell the appropriate percentage to the third party while the rest is distributed to you and your wife. Third, you can have the company issue a separate class of stock. For example there are companies that have voting stock and non-voting stock. Depending on your goal, you could just issue non-voting stock and sell that.

Best bet is to contact a lawyer who specializes in this type of work and have them recommend a course of action. One caveat that has not been mentioned is that what/how you do this will also depend on the type of corporation that you have created.

Haendler
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