Case Study

Reorganisations with share for share exchange

Re-organisations of share capital is one of our core practice area. We are instructed to handle de-mergers and group restructures with new holding companies which are achieved via share for share exchange. We work with accountants who refer this specialist work to us and with companies directly.

Some of our recent work involving share for share exchanges

We work with both the companies and individual shareholders.

A share for share exchange involves the transfer of shares in an existing company to the shareholders of a new holding company. Typically the main concern is to keep the transaction tax neutral for the shareholder and there are several reliefs available. Where HMRC tax clearance is available we recommend obtaining one as it does provide certainty to the tax position.

Splitting the business in anticipation of a trade sale

Our clients wished to separate their business activities to make the company more attractive for a sale. We looked at various choices and recommended restructuring by way of capital reduction de-merger. The first step was to create a group structure by inserting a new holding company. Our clients then exchanged their shares in the original company for shares in the new parent the share for share exchange. Effectively in this situation there is a disposal of shares which can trigger capital gains tax liabilities. There is also the risk that the ability to claim Business Assets Disposal Relief (BADR) is lost.


We advised on the tax reliefs that are available and successfully applied for HMRC clearance. The structure put in place enabled the possibility of claiming Business Assets Disposal Relief (BADR) on eventual sale of the shares when the business was sold to be kept alive.

Technology company ring-fencing liabilities to protect IP

Our client, a technology company was looking to protect its IP (intellectual property) assets in the event of business failure or liquidation.

We explained that assets such as intellectual property can be protected. The route is to separate the IP assets from the trading business. The IP business grants a licence to the trading business.

Outcome achieved

A new group holding company was established and the shares in the original company were exchanged on a share for share basis. A new subsidiary was also set up and the IP assets were transferred into the new subsidiary. The original company became the trading company. We explained to our clients the likely position under the new structure in the event that the trading subsidiary failed.

Internet service testing company’s share for share exchange

On this occasion the share for share exchange was structured to prevent the company’s shareholder losing their BADR entitlement.

BADR may be lost if there is a future disposal of the holding company’s shares. However it can be preserved on disposal of the newly acquired shares if certain conditions are satisfied. The conditions are:

  1. The shares before the share for share exchange have been held for at least 24 months and represent 5% of the new holding company’s issued share capital; and
  2. The company is a trading company or holding company of a trading company; and
  3. The shareholder is a director, officer or employee of the company, or one or more of the companies in the group.

Outcome achieved

We reviewed the company’s articles of association and shareholders agreement as these documents can contain restrictions on transfer and will include requirements for shareholder consent. Documenting the share for share exchange and the reasons is a requirement especially if HMRC review the share transaction with a view to collecting tax. Filing the shareholder resolutions at Companies House is another essential step we dealt with our clients.

Protected income and capital tax reliefs for EIS shareholders

We prepared EIS document that prevented the existing EIS shareholders’ shares from being regarded as “disposed” on a share for share exchange, and so protected the reliefs.

Benefit of our help

If not structured and drafted correctly a share for share exchange can jeopardise EIS shareholders’ relief because essentially it is a disposal. To preserve tax relief certain conditions must be met and the EIS shareholders can obtain for HMRC clearance in advance. Combining our legal and tax capability we were able to draft the documentation to satisfy the conditions to preserve the tax relief and our application for HMRC clearance was successful.

Catherine Gannon

Catherine is an extremely experienced solicitor, having been qualified since 2000, and deals with all types of corporate and commercial matters and advice and also tax law.

Catherine is well known for turning complex problems into solutions, priding herself on always finding a way. In her spare time she runs Gannons!

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