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Where Taxpayers and Advisers Meet

Issuing shares to a collaborator

Incredulum
Posts:2795
Joined:Thu Dec 03, 2009 5:35 pm
Issuing shares to a collaborator

Postby Incredulum » Tue Oct 23, 2018 12:44 pm

Mr A owns a company X Limited. X is in the building construction industry and has been trading a couple of years. It has cash of 100k and receivables/debtors of 200k, and share capital of 1 share of £1, base cost is £1.

Mr B is going to take a share of the company (Mr B has been sourcing the work). The shares are going to be held by his company B Limited.

Also, Mr A wants to interpose a holding company, A Limited so he can extract value from the company so it doesn't matter if it's sued.

This is a standard exam-type question, but it's years since I've done one, so I'd be grateful for your thoughts.

1. X Limited issues 59 shares to Mr A, and 40 shares to B Limited. The value shifting rules make this a disposal by Mr A, market value applying. He can claim hold-over relief through s165 TCGA. What does he put in the 'description of asset' box on the tax return?

2. A Limited now issues shares to Mr A in consideration for his shares in X Limited. s135 TCGA should apply here. Doesn't seem any need to apply for clearance, but would you?

Any thoughts, please? It worried me that doing step 2 before step 1 - i.e. interposing the holding company prior to issuing shares to B Limited - might make s135 tricky.

The plan is for dividends to be paid, as well as salary to Mr A. Any issue with a management fee being paid to A Limited? Or B Limited? Or are we better with alphabet stock and declaring different dividends to the two of them - which would be reflecting their different contributions to projects.

Thanks.

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