I am dealing with a company re-organisation. The first stage involves putting in place a holding company by way of share for share exchange.
A requirement is that the target company and acquiring company must have matching shareholders. I would appreciate your thoughts on how to deal with the subscriber share in the acquiring company.
I would propose to issue it to one of the shareholders in the target company and then note in the transfer agreement that he will receive one less consideration share on the basis he holds the subscriber share (so that the shareholding are the same as in the target).
Alternatively, issue on incorporation the same number of shares in the acquiring company in the same proportions as in the target but then there would be double the number of shares in issue in the acquiring company than in the target.
What is the best way to deal with it? Are there other ways?
Many thanks
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Replies (2)
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The best way to deal with it is to outsource work that you don't feel confident doing. This is not a single transaction for which you could get a straight answer. This is a complex transaction where the correct actions depend on a wide variety of details. There is a lot that can go wrong here and you don't want to make a mistake.
Also at least some items look like legal questions, not accounting one. If it is a "requirement" that there are matching shareholders then a "note in the transfer agreement" might not cut it on a legal basis. After all, a sole shareholder has 100% control. You'd need to ensure they can't legally abuse that control.
Obvious answer to that problem would be to have more than one subscriber share. Any reason for not doing that?
How many shares are in issue in the target company?
Where does the requirement that the holding company and target company holdings match come from?