Circular shareholding

Circular shareholding

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A client wants to set up a number of companies, the proposed structure would result in the "top" company (company A) owning 49% of a another company (company B) and the other 51% being owned by a number of individuals, Company B would own 5% of the shares of company A as an unlisted fixed asset investment. Is there any problem with this proposed structure that anyone can tell me of? Thanks

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By johngroganjga
16th Sep 2014 15:15

Unless there is a very good

Unless there is a very good reason for that complexity it should be avoided at all costs.

What is it intended to achieve?

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By Katster80
16th Sep 2014 15:24

Company B is a trading

Company B is a trading company that company A intends to purchase 49% of and as an incentive of the deal they are to sell 5% to company B of their own shares.

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By johngroganjga
16th Sep 2014 15:27

Incentive to whom?  And to do

Incentive to whom?  And to do what?

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
16th Sep 2014 19:25

I thought that it was illegal for a subsidiary to own shares in its holding company (since at least CA1985). They would be voided.

This is what CA2006 says:

http://www.legislation.gov.uk/ukpga/2006/46/part/8/chapter/4/crossheadin...

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By johngroganjga
16th Sep 2014 19:34

That may be right, although I haven't checked. But in any event, illegal or not, it must be easier and more transparent to issue shares to the shareholders in B as part of the consideration for the purchase of their 49%, to achieve the same result.

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The triggle is a distant cousin of the squonk (pictured)
By Triggle
16th Sep 2014 19:39

Agreed John. Keep it simple.

For a start, the OPs proposal would have inter-company dividends going round in ever decreasing circles.

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