Any issue or transfer of company shares must be undertaken with professional advice. Share transactions always have tax consequences both immediately and in the long term.
The issued shares are those that are held by shareholders, these are the active shares of the company. Shares are usually issued to one or more director when the company is formed. For many companies no further share issues are ever made.
If you are thinking of issuing further shares either to existing shareholders or new shareholders please discuss this with us. There are regulations that can protect existing shareholders to avoid dilution of their holding, and there are significant tax consequences of issuing shares that have value. How this affects your particular circumstances can usually be easily explained and the consequences made acceptable.
Once the consequences are clear and agreed to, the procedure for issuing further shares can be carried out by us online.
The transfer of shares between shareholders does not affect the company directly. Even if no price is paid for the shares there are potential tax implications for both the transferor (capital gains tax) and transferee (benefit in kind). Stamp duty is payable on a transfer of shares for which payment is made.
We can advise on the consequences of a share transfer and carry out the relevant checks, forms and lodgement with HM Revenue and Customs.
If you require any assistance with share transactions please contact us. The tax and regulatory situation will be specific to your circumstances but is generally straightforward.
Enterprise Investment Scheme (EIS)
This schemes offers tax reliefs to individuals investing in trading companies other than companies they are connected to. A minimum investment of is required (was a statutory requirement, now a more general need for the money to be an “investment”). The investor’s tax liability for the year is reduced by 30% of the amount invested and gains can be free of capital gains tax. The shares must be held for at least three years.
Creating a group structure can bring benefits to a growing business. A company that has accumulated significant assets and has grown its trade may wish to separate the valuable assets from the risk of the trade. Owners who are looking to take a more controlling role in a business may also wish to have the value separated from the trade.
Within a group structure assets and trade can be separated, thereby protecting the assets. Family members or employees can become more involved in the trade side of the business without the need for them to purchase a share of the asset value. The creation of a trading subsidiary may help you meet your objectives.
Issuing shares and receipt of money for the shares
When issuing any shares the register of members must be updated at the point of share issue. It is the act of updating the register of members that legally creates the share issue.
For Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) the timing of the share issue (update of register of members) compared to the timing of money being received is crucial:
The shares mustn’t be issued before the money is received. The shares must be fully paid in money at the point of issue.
Ideally the shares should have been issued and recorded in the register of members on the same day as the money received.
If the money received a few days before the share issue (update of register of members) and it is made clear there is no debt created, this is unlikely to be a problem.
The money shouldn’t be received more than a few days before the share issue. If that happens this can create a debt. The shares being issued may then be seen by HMRC as in satisfaction of the debt which would disqualify them from EIS.