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Tricky takeover

29 March 2011
Issue: 4298 / Categories: Forum & Feedback , Income Tax , Inheritance Tax
The management of OldCo wish to take over the company from the present shareholders and plan to do this via NewCo

We act for OldCo a trading company whose management want to purchase a stake in the business. The deal would involve the management setting up a new company and investing £250 000 into it which will be treated as £1 000 for shares (par value) and £249 000 as directors’ loan accounts. NewCo would then be used to purchase OldCo and provide the current owner with 25% shares in the holding company £250 000 cash and £750 000 qualifying corporate bonds. 

The trading company is currently worth £1.5 million being £1 million net assets and £500 000 goodwill.
There are two issues I am uncertain about: Do we need to put a clause in the deal so that the current owner is entitled to the £500 000 share premium account which will be generated when the deal...

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