A share for share exchange is a transaction which serves to re-organise a company’s shareholdings into a new holding company (‘the acquiring company’). Such measures will typically be taken for a variety of purposes which amongst others, include:
- re-organisation of the overall group structure;
- break-up or transferring of trade(s) to different subsidiaries;
- creation of distributable reserves;
- streamlining of ownership;
- succession planning;
- preparation or alignment for a future sale.
In order to execute a share-for-share transaction, the required documentation to achieve same can be quite extensive and would ordinarily include the following (although the facts and circumstances of each particular transaction would ultimately determine the full extent of the actual documentation required):
- An agreement between the shareholders who are exchanging their shares and the group company that will be acquiring the shares in the target company. This agreement should set out amongst other things:
- the terms governing the exchange of shares;
- the procedure for implementing the transaction and any terms relating to the apportionment of any related risk arising/ warranties etc.
- Stock transfer forms;
- Board minutes of the acquiring company approving the acquisition and the allotment of shares to the transferring shareholders;
- Depending on the circumstances, the acquiring group company may also require shareholder authority to allot the relevant shares;
- Any pre-emption rights on the allotment of such shares may also need to be waived or disapplied;
- Board minutes of the target company approving the registration of the transfer of the shares in the target company to the acquiring group company;
- The Articles of Association or Shareholders agreement (where one exists) may include veto rights which must be considered during this process – amendments may be required.
As a share for share exchange essentially involves the disposal of shares in one company and the corresponding acquisition of shares in another company, consideration will be required as to taxation implications arising on the transaction.
The application of stamp duty on the exchange or transfer of shares will also require consideration.
However, where certain conditions are met, there are a number of tax reliefs available under current tax legislation which both exempts stamp duty exposure and which enables shareholders to minimise or defer taxation.
Please note that this commentary does not purport to be a comprehensive review of the UK company share for share exchange provisions. Detailed appropriate advice should always be taken before any particular transaction of this nature is entered into.