In recent weeks, we have seen a flurry of farming clients coming to us to draw up the legal paperwork for a share for share exchange.
A share for share exchange happens where the shareholders in an existing company (the “old company”) swap their shares in that company for shares, in the same proportions, in a new holding company (the “new company”). The result is that the old company becomes a subsidiary of the new company. The ultimate ownership and control of the group does not change and the trade generally remains in the old company.
The usual reason for doing this is to move a farm’s valuable property assets into the new company, to protect them from the commercial risks involved in the trading activity. Forming a group can also be helpful if you are considering diversifying into, for example, farm shops or tourism.
It is vital to take specialist legal and accountancy advice before carrying out a share for share exchange to ensure that:
- the transaction is properly documented to minimise the risk of any future disputes.
- you can take advantage of the applicable tax reliefs. If carried out correctly, the exchange can be completed without incurring any capital gains tax or stamp duty liability.
- there are no unintended consequences, such as triggering the termination of any of the business’ key contracts or a breach of any of its banking facilities.
For more information on share for share exchanges, please contact us online or call 0800 652 8025.