Readers' forum: Exit plan

A small limited company (OldCo) has traded for many years and has a modest amount of money in the bank. The sole shareholder and director is planning a gradual exit over the next five to ten years.

He has appointed his son as a director of the company. The son would like to buy 20% of the shares from his father at a fair value but cannot finance the purchase. His plan is that: the son will form his own limited company (NewCo) to buy the shares; his father will sell the OldCo shares to NewCo at a fair value without any restrictions; NewCo will borrow some money from OldCo to partly pay his father for the shares the debt between the two companies will be repaid over five years from part of the dividends that NewCo will receive from the trading company OldCo; and the remaining...