Share For Share / Undertaking
The exchange involves the disposal of shares in one company and the acquisition of such in another. There are many scenarios where such an exchange may be the appropriate course of action for your client. This may include the acquisition of a new business, to facilitate a group reorganisation or the creation of a group.
One of the key reasons for using this exchange mechanism is to take advantage of available reliefs. Where it is correctly executed, a company may claim relief from stamp duty under section 79 or section 80 of the Stamp Duty Consolidation Act (SDCA) 1999, applicable and relief from capital tax under Section 584 and 586 of TCA 1997.
However, such transactions are often a complex and lengthy process, and a great deal of care needs to be taken to avoid unforeseen tax liabilities.
How We Can Help
For the transaction to qualify for relief, the conditions include, but are not limited to, there being a bona fide scheme of reconstruction or amalgamation; the scheme being effected for genuine commercial purposes; and the reconstruction/amalgamation not being undertaken for tax avoidance purposes. Moreover, the acquiring company must be limited, and 90% of the value of the consideration must be attributable to the shares issued by the acquiring company.
Before attempting to carry out an exchange transaction, it is important to have a full understanding of these and other conditions for qualifying for tax relief – and to understand the circumstances under which relief can be clawed back. Additional conditions apply where the scheme of reconstruction or amalgamation takes places over an extended period.
Steps Involved in Effecting a Share for Share Exchange
- Statutory register or last annual return
- Copy of latest financial statements for the target company or companies
- Current constitution for each company involvedc
- Details of shares to be allotted or be transferred
- Date on which the transaction is to take place
Once we receive this information, we can proceed with drafting the necessary documentation. The key steps in the process are as follows:
- The constitution of the acquiring company is amended to allow it to acquire the entire share capital of the target company (depending on the type of company).
- The shares in the parent company are allotted to the target company. The consideration for these will be the shares being transferred in the target companies or company.
- A transfer must then take place from the members of the target company. The number of shares to be transferred must be equal to the number being allotted in the acquiring company.
- Certain reliefs must be claimed from a Revenue perspective