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Merge Options

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Larger Company 1
Party A - 50% share
Party B - 50% share

Smaller Company 2
Party C (parent of Party A) - 100% share

Issue is that Party A stands to inherit Company 2 in full regardless due to it being a family business and Party A understanding the business. However all parties agree a merger will be beneficial due to both companies currently working very closely and Party A wants to finalise before potential issues in years to come.  

My possible solution was:
Group Company is formed incorporating Company 1 & 2. Party C is paid a small sum for part of Company 2 from Company 1. 
Party A - Majority Share (ie 51%)
Party B - Large Share (ie 39%)
Party C - Small Share (ie 10%)

The issue there are concerns that Party B will not be happy giving up control. 

Are there any other ways that people would approach this. 

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Hallerud at Easter
By DJKL
29th May 2020 23:51

If company 1 is paying its money to Party C for most of his shares in Company 2 then surely Company 1 becomes a shareholder in Company 2?

Alternative is Company 3 formed which issues shares to A,B & C for their respective interests in both companies, 1 & 2,however cannot see how Party A can ever get to a larger percentage ownership in Company 3 than he previously had in Company 1 without a transfer of value from Party C to Party A with all the tax ramifications that may involve.

If Party A currently has 50% of just Company 1 how can he get to 51% of company 1+2 combined without a transfer of value?

Perhaps the starting point is valuing the two existing companies.

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By Tax Dragon
30th May 2020 07:23

Anonymous NonAccountant wrote:

The issue there are concerns that Party B will not be happy giving up control. 

Are there any other ways that people would approach this. 

Yes, 1. agree the final destination with B; 2. discuss how to get from where you are to that agreed destination with an accountant.

You dont do transactions like this on the fly, if you've half a brain cell (even if current values are modest).

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By Tim Vane
30th May 2020 11:43

All three (or 5) parties need to lawyer up and only get accountants involved once the deal is agreed. Your PII almost certainly won’t cover you to advise on this at this stage.

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