I want to sell my company, but the purchaser does not want the property - what can I do?
This is a situation I see on a regular basis. A company has traded profitably for many years and surplus funds have been invested in, for example, additional property. The owners may wish to sell either the property, or the trade, but it is unlikely that a single purchaser could be found who would want both.
The value of the investment asset may also be increasing to the point that the company no longer qualifies as a Business Asset for taper relief purposes – resulting in a much larger tax charge on a sale of the shares. This could be solved by removing the property from the company, but a straightforward distribution of the property would trigger tax in the company, and also for the shareholders.
What can be done? The answer is often some form of reconstruction.
A reconstruction is a process that effectively splits the trade and the investment business assets and places then in two new companies. It involves placing the existing company (or typically a new holding company inserted specifically for this purpose) into liquidation. The assets are then divided and distributed by the liquidator to the new companies.
As far as the shareholders are concerned, they have exchanged their old shares for shares in the two new companies. They can then sell their shares in either the property holding company, or the trading company, quite independently of each other.
Reconstructions are not cheap as it they involve the appointment of a liquidator and a lawyer who is familiar with the process. However, the tax savings can be substantial.
Date: 11th June, 2007
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