Hi Guys,
I have a client who is in the process of investing into a local business. A remortgage is being taken for £250,000 and in return, there will be 20% share issue. The business intends on repaying the full amount with a further 125% within 3 years. If this payment is not made, then interest will be charged on a monthly basis. There are 3 directors who will all be legally bound to mitigating 25% of the loss (each) in case the venture does not succeed and the investor will only suffer a 25% loss. All risk mitigation is being done via solicitors and guarantors are also being legally committed.
Am i right in thinking that EIS cannot apply?
Thanks guys.
Replies (3)
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Confusing
Must be the weather but I am not sure that I understand the structure you are talking about.
Is the investor making a loan, which can be guaranteed, or purchasing ordinary shares where there cannot.
If the investor is not currently connected to the company, and purchases a 20% shareholding in ordinary shares in a qualifying company, and it fits within the current investment limits I see no reason why EIS should not apply.
But - you then go on to talk about repaying the capital?
An extract from initial guidance states:
They must be 'full-risk' ordinary shares, with no preferential rights to dividends, or to the company's assets in the event of a winding up. There must also be no arrangements to protect the investor from the normal risks associated with investing in shares, and no arrangements for the shares to be purchased by anyone else after the end of the relevant period.
Please confirm the nature of the investment as if it fails the above test, or is a loan, EIS cannot apply
Okay
I think then that the amount he actually pays for the shares, to be paid in full before any other transactions take place, is the amount that would qualify for EIS relief.
There is very comprehensive guidance online but I always found that a phone call to the Small Enterprise centre to discuss the potential transaction was avery useful exercise