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Merger costs and Benefits-in-Kind

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We are a private limited company involved in merging with another company.   We have incurred large legal costs and assumed that the company would pay these

It now transpires that as it is WE who are selling the shares we are therefore liable for paying the legal costs.  We can get the company to refund these I guess but must that then be treated as Benefit-in-kind?  Is there no way to reduce or avoid this?

Thank you

 

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By Accountant A
21st Aug 2019 11:25

Are you effecting this merger without any professional tax and accounting advice? That would be very ill-advised.

Take professional advice on the transaction and you'll be able to sleep at night knowing everything has been done correctly.

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By chicken farmer
21st Aug 2019 11:43

From the very limited information you have given, it seems that company A is acquiring your shares in company B, maybe for cash or an issue of shares in company A.

As company B would not be a party to such a transaction, why should it be liable for any legal costs???

Speak to your accountant.

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By paul.benny
21st Aug 2019 11:58

aceman2 wrote:

 We have incurred large legal costs and assumed that the company would pay these.

Why on earth did you assume that? When you sell a house, each party pays their own expenses. I can't immediately think of any situation where the buyer pays fees incurred by a seller.

What else have you assumed that might come as a surprise? Not just financial or tax, but liabilities or obligations that could remain with you as (former) owner?

You say that you are merging - but the legal form is a takeover. Who will control the acquiring company? Will they decide that they no longer need you as an employee?

Go get accounting and legal advice. And make sure both have experience of acquisitions.

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Replying to paul.benny:
Hallerud at Easter
By DJKL
21st Aug 2019 12:10

Given they already have large legal bills presumably they have already taken legal advice.

Clients can be funny re these sorts of things, they do somewhat assume everything re their business, or what they perceive as their business, is a business cost.

To me it seems maybe their advisers ought to have explicitly pointed this out at the outset.

As an example we are currently doing an IHT/Partnership agreement/Shareholder agreement/wills/power of attorneys exercise re the owners of my employer and I have pointed out to them that virtually all of the cost will be personal not business, but I am also pretty sure most advisers do not set these things out explicitly at the outset.

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Replying to DJKL:
Psycho
By Wilson Philips
21st Aug 2019 12:18

Agreed - I come across cases all the time, eg share sales, where the shareholders think that, because it has "to do with the businesss" then their company will pick up the tab. They are usually less than happy to be told of the implications should that be the case.

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By aceman2
21st Aug 2019 15:28

Thank you - I think DJKL and Wilson Philips were the quickest on the up-take.

I am on the periphery but Company B are acquiring us Company A - so it is the closest we can get to a 'merger'

We did take legal advice (which has been somewhat hit or miss).

i guess I was erroneously comparing the takeover procedure with that of Public Companies. Many of us own shares in public companies. we are part 'owners' yet when they incur legal expenses it is the 'company' that is responsible not us

Why should private company owners be different from public company owners?. We didn't necessarily initiate the takeover. They made an offer and it was accepted. We could have gone ahead without legal advice - but is that wise - and so we found ourselves personally paying

This is so different from the analogy of buying/selling houses.

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Replying to aceman2:
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By Accountant A
21st Aug 2019 15:59

aceman2 wrote:

They made an offer and it was accepted.

Well you should have made acceptance of the offer conditional on the purchaser paying your legal expenses!

You made a badly informed decision. I'm afraid that's on you.

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Replying to Accountant A:
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By Tax Dragon
21st Aug 2019 16:10

I do like the "it was accepted" comment. Who did the accepting?

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Replying to Tax Dragon:
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By Accountant A
21st Aug 2019 16:48

Tax Dragon wrote:

I do like the "it was accepted" comment. Who did the accepting?

Presumably the "WE who are selling the shares" that the OP mentioned in the question.

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Replying to Accountant A:
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By Tax Dragon
21st Aug 2019 17:14

Who else could it be?

Accountant A wrote:

Well you should have made acceptance of the offer conditional on the purchaser paying your legal expenses!

You made a badly informed decision. I'm afraid that's on you.

Let's assume (in the forever Aweb fact void) that the offer was all in shares. After all, if it was a cash offer, I'm sure WE would have realised the cash was theirs and so might have anticipated/understood more readily that the costs were also theirs.

Had the purchaser (the company which now owns the original shares, in which they now hold new shares and, at a guess, which now employs them - at least, within the group) agreed to pay the costs, would that be taxable? To be fair to the OP, that is not that different from the question asked.

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Replying to aceman2:
Hallerud at Easter
By DJKL
21st Aug 2019 17:49

The public company takeover involves the purchaser making an open offer (with or without the backing of the directors in the target company agreeing) and the current owners accepting or otherwise.

If I own x shares worth £20k in YCO I either accept or do not accept or ignore- at worst I read some press/broker commentary or do my own research ( I recall doing some work years ago re the Vodafone/Verizon deal and also when Shell did their mega purchase of the gas lot a few years ago- I took an arbitrage position I recall once the terms were disclosed )

If I own £20m shares in YCO I likely pay my prof team to review the offer for value of offer re what I am selling and maybe value of paper I am accepting, if I do these are my costs.

The catch is not many of us own £20m of shares in one quoted company, so we do not incur costs as we are just selling a small position ,and private Co "takeovers" tend to not involve the prospective purchaser just publishing an open offer, they tend to be back and forward negotiations incurring costs for both parties.

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