Overview

Share reclassification, share for share exchange, dividend in specie and capital reduction de-merger for a managed IT support company before a sale to a third-party buyer.

Case Study

The team at Ison Harrison were instructed by the shareholders of a family-owned company to restructure the business ahead of a proposed sale to a third-party buyer. The objective was to extract both the investment property and the trading property from the company and transfer them to the shareholders before the sale completed.

The business had grown to a stage where the shareholders wished to exit and use the sale proceeds to diversify their income. As part of the process, the Ison Harrison team carried out detailed due diligence, confirming the share ownership and identifying the assets held by the company. This review established that the company owned an investment property on behalf of the shareholders, which needed to be separated from the business prior to the sale to ensure the transaction proceeded on the correct commercial footing.

Liaising with the Clients tax advisor, the team at Ison Harrison discussed the best options available to extract the property from the Target in the most tax efficient manner. This involved creating a new company (Holdings) and transferring the shares in the Target to Holdings via a share for share exchange. However, to ensure that the share-for share exchange received beneficial tax treatment under s.135 TCGA and no tax charge applied, the shares of Target needed to be reclassified. Once Holdings owned the shares in Target, the team at Ison Harrison moved the Property from the Target to Holdings via declaring a dividend in specie from the Target to Holdings. The shares in Holdings were then reclassified in preparation for the capital reduction de-merger the net result being that the Client owned the shares in Holdings and the Target separately and so allowing the Client to sell Target to a third-party buyer.

The above process ultimately resulted in significant tax savings to our client.

Following the corporate restructuring of the Target, the team at Ison Harrison subsequently advised on the sale to the third-party buyer negotiating the share purchase agreement, drafting the disclosure letter and obtaining security for the Client over the Target for any deferred payments that were due under the sale.