Company lending money to another company

Can a company loan another company money to buy shares?

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COMPANY 1 LIMITED is owned 100% by COMPANY 2 LIMITED

COMPANY 2 LIMITED is owned 51% by JH and 49% by COMPANY 3 LIMITED

COMPANY 3 LIMITED is owned 45% by JO, 50% by AS and 5% by AT

Effectively the deal on the table is for JH to buy JO’s shares in COMPANY 3 LIMITED for £575,000.

My issue is that JH has £200,000 of his own funds but would have to borrow £375,000 in order to fund this deal.  The only source of funds of that size is COMPANY 1 LIMITED.

So my first question is.  Can JH form a new company (let’s call it COMPANY 4 LIMITED) which borrows £375,000 from COMPANY 1 LIMITED – documented as inter company loan?  He then introduces £200,000 into COMPANY 4 LIMITED as a director’s loan.  COMPANY 4 LIMITED then buys JO’s 45% in COMPANY 3 LIMITED for £575,000.  If so can there also then be an ongoing inter company loan from COMPANY 1 LIMITED to COMPANY 4 LIMITED which funds his repayment of his director’s loan?  Effectively at the end of all this COMPANY 4 LIMITED would have a debt to COMPANY 1 LIMITED of £575,000 which I assume would just sit on the balance sheets?  Potentially never get repaid.

Second question is.  Can JH form a new company (let’s call it COMPANY 4 LIMITED) which borrows £X per month from COMPANY 1 LIMITED – documented as inter company loan?  He then introduces £200,000 on day 1 into COMPANY 4 LIMITED as a director’s loan.  COMPANY 4 LIMITED then buys JO’s 45% in COMPANY 3 LIMITED for £575,000 but paid in stages over 24 months.  If so can there also then be an ongoing inter company loan from COMPANY 1 LIMITED to COMPANY 4 LIMITED which funds his repayment of his director’s loan?  Effectively at the end of all this COMPANY 4 LIMITED would have a debt to COMPANY 1 LIMITED of £575,000 which I assume would just sit on the balance sheets?  Potentially never get repaid.

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Stepurhan
By stepurhan
24th Nov 2016 16:57

There are a lot more than two questions there, however you want to pretend otherwise.

This is a potentially complex transaction with large amounts of money involved. Seek paid for advice from someone with PI to cover you if it goes wrong.

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