Loan Arrangements - Safe & Settled -v- (Potentially) Acrimonious & Vague!

Having spent some considerable time over recent weeks seeking to assist businessmen with the 'issues' which have arisen - when they (thought they had) 'agreed' a large loan arrangement on the back of an old menu in a restaurant - I wanted to put on record that settling and documenting proposed loan arrangements (ideally - before they are entered into) is always a worthwhile step - if only to save a long term friendship from considerable strain!   

The 'trick' to reasonably rapidly settling the terms of a loan arrangement and / or documenting the same (in a manner which is 'usable' in the future) - is to use a sensible template loan docment which is a compromise between conciseness and completeness.

I frequently settle & document loan arrangements in a wide range of amounts & formalities - and can relatively rapidly adapt my (see my front-piece extract - below) template document to client's arrangements.

Please feel free to contact me directly to discuss any aspects / issues where a conversation might assist you.

Regards

Dan.Johnson@EquitableLaw.com

(+44 ) 7788 537 187 (U.K. Cell. Tel.)

Enterprise Investment Scheme (EIS) - Recent Changes

'No' To Acquisitions -v- 'Yes' To Growth Capital

The relevant EIS related legislation (which supports H.M. Government's efforts to encourage SME investment) has recently changed slightly (late in November 2015 - as the U.K.’s second budget this year finally (!) obtained Royal Assent).

While ‘the devil is always in the detail’ (you should always refer directly to the relevant legislation - which is not easy to follow, not least because it changes all the time in a convoluted fashion – by virtue of attempts to comply with EU rules etc.), those involved in small business finance should be aware of the following.

The relevant legislation contains a test relating to the ‘use of money’ raised - which provides that the money raised by the share issue must be employed for the purposes of a qualifying business activity (broadly, a qualifying trade, preparing to carry on a qualifying trade if the trade is commenced within two years, or research and development from which it is intended that a qualifying trade will be carried on) (section 174, ITA 2007).

For shares issued on or after 18 November 2015, employing money on the acquisition of an interest in a company, a trade, or goodwill and intangible assets employed for the purposes of a trade, will no longer satisfy the use of money raised requirement (paragraph 11, Schedule 5, Finance (No.2) Act 2015).

Accordingly, it is now highly unlikely that a transaction can be structured so that EIS reliefs can attach to monies which are used in a merger or acquisition (M & A) transaction - historically a useful 'sweetener' to such deals which well briefed legal advisors had been able to offer their clients.

As regards any subscription proceeds which can be characterised as being used for ‘growth' or 'development' capital (such funding being -  of course - what the legislation is intended to encourage), it should still be possible to satisfy HMRC that the relevant shares are (to be) issued in order to raise money for the purpose of a qualifying business activity.

For shares issued on or after 18 November 2015, the legislation expressly includes the additional requirement that the shares are issued to promote the business growth and development of the issuing company (paragraph 10, Schedule 5, Finance (No.2) Act 2015).  

This requirement is now made explicit to reflect state aid requirements.  The European Commission's state aid guidelines support the provision of tax incentives for the expansion stage of smaller businesses.  Hence the new explicit requirement that shares are issued to promote the issuing company's business growth and development.

Always remember that there a host of other tests (e.g. parent / subsidiaries structures – need particular care) which need to be satisfied for EIS reliefs to be available to investors – such that it is always wise to have the settled investment structure ‘blessed’ by someone with a knowledge of the legislation, and ideally – obtain advance assurance from HMRC’s relevant small business team(s) that EIS reliefs would appear prima facie seemingly to be available.   

Please feel free to directly contact me to discuss any of aspects of, or issues relating to EIS (if you wish to do so).

It goes without saying – but Equitable Law would of course be delighted to discuss assisting with the taxation aspects of funding transactions involving EIS.

Regards

Dan.Johnson@EquitableLaw.com

+44 (0) 7788 537 187 (U.K. Cell. Tel.)