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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am the largest shareholder in an EIS financed UK trading

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I am the largest shareholder in an EIS financed UK trading company. I have 28% of the equity. Another 30 people have the remainder of the shareholding. Over the past 5 years, we have had 3 rounds of funding as the company has expanded. Some of my shareholders now want to sell. I am prepared to buy their shares but to do so would take me over the 30% mark which would disallow my last lot of EIS investment (May-2016). This was a significant investment of over £100,000 and I am not prepared to forgo the tax relief due to me.
The shares in the current company are currently worth very little. The company needs further financing through the summer (our quiet season). I am prepared to provide this finance and propose to do so by way of providing a convertible loan stock. I understand that this will not prejudice my EIS relief. Would you agree?
This, however, does not resolve the desire of some shareholders to crystalise their loss. Could this be done by converting their shares into Deferred Shares and then making a Negligible Value Claim? Of course, even if this works from a NVC perspective, it does not give any value to my shareholders. So, ...
If I set up a new company which then bids to acquire all the shares of the existing company, would this still result in my losing my last lot of EIS investment relief?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to be able to help you with your question.
My first reaction as I started to read your question was to set up a company to hold your other participants shares to prevent your own EIS status being breached.
Alternatively an issue of Convertible Loan Stock would again protect your EIS position. Your other shareholders wish to crystalise their losses so the issue of Deferred Shares of no value would achieve this through the NVC route.
In essence, providing you do not yourself acquire the shares of others your EIS position will be protected. All the schemes you suggest would appear to achieve this end. Personally I would go down the new company route as this organization would be a separate legal entity from any other organization and, indeed, yourself.
I do hope that I have been of assistance.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.