Our client, a shareholder in a trading company which provided lighting systems to the retail market, had reached retirement age and wanted to exit the business. His fellow shareholder was several years younger and wanted to take full control of the company going forward.
The company had significant working capital requirements and thought that a purchase of own shares in a single transaction would be too risky from a cash-flow perspective.
How did Bedrock help?
We suggested several options to the shareholders including:
- A purchase of own shares using a multiple completion contract
- A purchase of own shares with an indirect loan back from the exiting shareholder
- Using a new holding company to purchase the shares from the exiting shareholder using deferred cash consideration
We outlined the key features and benefits of each of the options to the client and their accountant and discussed these with their solicitors.
As there was an amicable relationship between both shareholders they opted for the indirect loan back as there was less legal paperwork.
Business impact and benefits
We successfully obtained tax clearances for the capital treatment of the company purchase of own shares and confirmed that entrepreneurs’ relief should apply. This allowed each of the shareholders to achieve their objectives.
Working with the Bedrock team allowed the exiting retiring shareholder to leave the business in a tax efficient manner and for the remaining shareholder to run the company with adequate working capital.