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Readers' forum : Share reclassification

14 June 2016
Issue: 4554 / Categories: Forum & Feedback

How can a shareholder receive a dividend without adverse tax consequences?

My client is buying into an existing trading business. At present two shareholders/directors both hold the same class of shares.

My client will be buying out one shareholder and the other will remain. It has been proposed that there is a reclassification of the equity to ‘A’ and ‘B’ shares. Each shareholder will then be able to draw out dividends according to their individual personal circumstances in the future. The existing rights to the shares would remain.

My client will need to pay dividends to his holding company to service the loan taken out to acquire the shares. The remaining shareholder does not need income from the company.

From a company law point of view this would be straightforward. However my research indicates that this will be caught by the employment related securities legislation. Could there be a potential tax charge on my client even though he...

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