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Buachaill, Barrister
Category: UK Law
Satisfied Customers: 10527
Experience:  Barrister 17 years experience
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Is it best to sell shares in a holding company or subsidiary

Customer Question

is it best to sell shares in a holding company or subsidiary company?
Submitted: 1 year ago.
Category: UK Law
Expert:  Buachaill replied 1 year ago.

1. The issue of whether you sell the shares of a holding company or a subsidiary company depends on which entity you wish to pay tax. If you sell the subsidiary company, then tax will be levied on the holding company at the corporate tax rate. If you sell the holding company, then tax will be payable in the hands of the person who holds the shares and it will be Capital Gains Tax. so you need to calculate the tax payable when you are selling either as this is the chief determinant of that you do here. I am happy to help further.

Customer: replied 1 year ago.
If i can give you a bit more info for context.Our intention is to open 4 venues in 3 years, the first being Newcastle, then raise additional funds per venue. The options that we see at present are to having a holding company which will own 100% of the Newcastle subsidiary company. I will be selling 75.3% of the holding company to raise the funds to open the Newcastle venue. It is possible one or more shareholder will own 25.1% or more of the company (not more than 49.9%)When we come to venue two a new subsidiary company will be created. In terms of future venues I see two funding routes if we are going to the original share holders, these areEither to sell shares in the holding company or sell shares in the subsidiary company. We would write into the shareholders agreement that the holding company must own at least 51% of each subsidiary company.At present I see all 4 venues will be funded via the shareholders and debt finance, but want to ensure the company has flexibility and the ability to grow even if one or more of the original investors decide not to pursue the venture.
Expert:  Buachaill replied 1 year ago.

2. In this financing approach, it is best to sell shares in the subsidiary company because it means that the investor only gains a share in the particular venue owned by the subsidiary. If you start selling shares in the holding company, then it gets very messy for you as promotor, as you then have all these different people having interests in all the venues, not just one. So you are better off sell a slice of each subsidiary company and keep control of the overall venture yourself by retaining the shares in the holding company. You can then use the shares in the holding company for you, personally, raise any finance you might wish for the over all venture. This then remains in your own sole control even though you might not own all of each subsidiary because you had to finance each separately. This way you gain maximum flexibility whilst retaining overall control.