An investor wishes to sell eis shares bought over five years ago but the eis company say there are no buyers, though they are raising further capital via a new fundraising round or ipo.
the investor wants to sell his shares to his family Ltd company based on a letter from the eis firm confirming the valuation for the upcoming capital raise.
would this be sufficient evidence for the valuation?
Replies (9)
Please login or register to join the discussion.
Provided an otherwise unconnected investor buys shares at the value proposed by the business, I would consider that as good an indication of value as you can get.
I don't think pre-approval would exist for this type of transaction. As to the application of the GAAR, I suppose you need to consider why he's selling his shares.
As for the valuation, if nobody has paid or is willing to pay that much for the shares then it's a bad valuation, so I'd be reluctant to use it until they do so, or until you can assess their justification for the valuation in detail and decide whether you agree.
Furthermore, the EIS issue from the company is more valuable to a taxpayer than the same shareholding sold on by your client due to the tax reliefs attached to the former but not the latter, so even if investors are found at that price, I would consider discounting your client's sale of shares to account for the tax relief that's no longer attached.
Given the response to my response, I suspect it achieves a favourable tax outcome for the investor, presumably by retrieving funds from the company that are not subject to income tax.
If he’s looking at extracting £500k it would be worth spending £1k or so to have a proper valuation carried out.
Is the family company a trading company? If so, have all potential consequences of holding the shares been considered?
I reckon I could tell you the potential tax liability here without a valuation. And it's a six-figure sum. Personally, I would suggest the OP allocates that £1,000 to obtaining decent tax advice.
What do the other participants in the family company think of this?The biggest thing the sale achieves is cash flow for the individual’s personal use.......
Their company is exchanging cash of £500k for an investment, which, in view of the fact that their is no market for the EIS shares, & the necessity for the EIS company to raise further funds, may be worth very little.