Retirement and Company Ownership
Whether you're heading towards retirement or only just setting up your company, it's always a good idea to know what's going to happen to your company during the process.
This post will take you through the various options available when it comes to retirement and your company.
Selling the company
This can be seen as the most obvious option for company owners who are looking towards retirement. Subject to the terms set out in the shareholders' agreement, a company owner can sell their shares in the company and therefore cede ownership to a third party.
Alternatively, if you don't want to completely sell the company, you can sell a majority stake. This effectively hands over the control to the buyer, who will often become the new managing director. This means you are free to resign as a director, leaving you as a shareholder in the company.
In a similar way to this, you can also draft in a new managing director to run the company, which may also involve you giving them a stake in the company. However, if you retain more than 50% of the shares, you will still be in control of the company, even if you're only agreeing to all the decisions made by the new director.
Phasing out control
If it's a family company, parents will often hand over the reins to their children, through a gradual process that can take several years.
In this, the shares are usually less important as overall control of the company remains within the family. However, the day-to-day running of the company will be left up to the children, possibly with the parents as advisors and mentors.
Even if it's not a family-owned company, you can still phase-out control to another company director who is also a joint owner. Normally, this is done through selling shares to the relevant person.
When phasing out control, there is normally a longer process involved before you're able to retire. This is because you need to train up the person who will be taking over from you once you retire.
If you're not able to sell the company, and you have no one else to hand it down to, it may be necessary to liquidate the company.
This can be an expensive option because of the need to appoint a liquidator, but it can be a more tax efficient approach. This is because any proceeds from the company are treated as capital distributions rather than income distributions.
For more information on voluntary liquidation, check out our previous post: I'm Scared of Liquidation - Should I be?
Alternatives to Members' Voluntary Liquidation
If a company is still running and there are no threats of liquidations, an alternative way of shutting it down is to have it struck off the register. However, for this to be done, the company must not have traded in the three months preceding the date of application to be struck off.
Should I make my company dormant?
If the company ceases trading, there is no need to have it struck off the register. However, all the usual filings will need to take place unless the company is made dormant. A company is considered to be dormant if there have been no significant accounting transactions during the relevant accounting period.
If a company is both small and dormant, there is a significantly reduced statutory burden. You will only need to submit an unaudited, abridged balance sheet and certain notes to Companies House. You will, however, still need to file an annual confirmation statement. You also won't have to file a profit and loss account or directors' report.
A dormant company also has no corporation tax to pay, but HMRC should be notified within 3 months if a company becomes dormant.
The downside to doing things in preparation for retirement is that you will still need to carry out ongoing administrative duties. However, these are reduced.
Unless you have built up a very substantial savings pot and/or sell your company for a vast sum, it's likely you will need to rely on your pension to maintain your lifestyle.
Therefore it is important that prior to giving up the company (or shutting it down), that your pension payments will suffice as a substitute to your previous level of earnings.
Sometimes it can make sense to take a few additional years before retiring so you can build up your monthly payment limits to a sustainable level.
Can I own a business in my retirement?
There is nothing stopping you from owning a company (or several companies) while being retired.
You can decide to draw your pension, hire a managing director to look after the company, and then take a step back from the day-to-day running of the company.
Many company owners decide to go into semi-retirement, rather than completely leaving the company. In fact, the idea of retirement is generally shunned amongst entrepreneurs.
Company owners often carry on working in some form beyond retirement. Usually as a consultant within their company. However, if the company falls on hard times while its owner is relying on dividends, this can lead to financial hardship for the owner.
Can I be forced to retire from my own company?
If a company owner has less than 50% of the company shares, they can theoretically be forced to resign as a director.
This should not be done on the basis of age, as it could then be classed as age discrimination.
However, if a director is found to lack the mental capacity to run the company (by a medical professional), this can potentially lead to their directorship being automatically terminated.
In these instances, you should always seek advice from professionals.
- 24 Nov 2020 - Are Directors and Shareholders Liable for Company Debt?
- 06 Nov 2020 - Can My Company Make Contributions Towards My Pension?
- 27 Oct 2020 - Retirement and Company Ownership
- 23 Oct 2020 - Reasons Why You Need an Accountant for your Limited Company
- 30 Sep 2020 - What is a Director's Loan and do you need to pay tax on it?