What is a Share-for-Share Exchange?

A share-for-share exchange is a common restructuring method used to create a holding company and the beginnings of a group structure.

In this process, shareholders exchange their shares in an existing company for shares in another company, typically a newly incorporated company (the holding company), rather than receiving cash consideration.

Relief under section 77 of the Finance Act 1986 may be available, enabling a Stamp Duty exemption to be claimed by submitting the appropriate notification to HMRC (provided that the transaction is implemented correctly and the notice submitted in advance of completion. This notification is often prepared by a company’s accountants, although we would be happy to assist with this preparation if required.

Process

• A new holding company is incorporated.
• An application for Stamp Duty relief under s77 is submitted to HMRC.
• HMRC confirmation is received.
• The existing shareholders transfer their shares in the trading company to the new holding company. In return, they receive newly allotted shares in the holding company.
• The holding company becomes the sole shareholder of the trading company but the original shareholders retain ownership through the holding company.

What are the benefits of a share-for-share exchange?

Asset protection

Valuable assets such as property, intellectual property and cash reserves can be transferred up to the holding company. This helps ring-fence those assets from trading risks faced by the trading company.

Tax benefits

Where s77 relief applies, the transfer of shares will be completed without incurring any Stamp Duty liability for the holding company.

Future expansion

This structure can support future growth by enabling additional subsidiaries to be established for future projects or investments, whilst remaining in the same group umbrella.

Succession or exit planning

A holding company structure is commonly used to facilitate succession and exit planning. For example, in management buy-outs, incoming management buyers may acquire an interest in the holding company using a combination of cash, loan notes and equity.

Demergers or business sales

It is also used as a preparatory step for demergers or disposals, by separating property and other key assets from trading operations before a sale.

Why you should always take professional advice

It is essential to get professional legal advice to ensure that the transaction executed properly. We can help ensure that;

• everything is documented properly;
• the intended structure is being put in place;
• the transaction does not clash with any existing shareholder agreements;
• the transaction accommodates any employee-owned shares; and
• hiving up of assets are done in a legally compliant manner.

We also strongly advise that you take advice from your accountant on any potential tax implications.

How we can help

Our specialist corporate solicitors can work with you and your accountant from the outset to provide you with expert legal advice on structuring and documenting your transaction.

We have experience of undertaking various types of share-for-share exchanges and can prepare the legal documents tailored to your needs.

If you would like support or assistance, or have any questions, then please contact us on 0116 212 1000 or contact Louis Tranter on 0116 212 1036.