Four fall out

A limited trading company has four shareholders with equal shareholdings: 25% each. There were 100 £1 shares in total purchased at par.

One of the shareholders wishes to leave the company and it has been agreed that his shares will be purchased for £100 000.

Of this £20 000 will be payable immediately and the balance will be paid over the next two years. It seems that there are two options.

The company purchases its own shares provided all of the legal requirements are met i.e. there are sufficient reserves to pay all the creditors first etc.

The other three shareholders purchase the shares personally; the plan would be to draw additional dividends to pay for this.

My view is that the second option is preferable provided that a higher-rate income tax liability can...