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LPC Law Notes Private Acquisitions Notes

Structuring A Transaction Notes

Updated Structuring A Transaction Notes

Private Acquisitions Notes

Private Acquisitions

Approximately 339 pages

A collection of the best Mergers and Acquisitions* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Mergers and Acquisitions notes available in the UK this year. This collection is f...

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The following is a more accessible plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

FACTORS AFFECTING CHOICE OF ACQUISITION FOR SELLER
SHARES ASSETS
Clean break from Business

  • No further liabilities for the Seller

  • However, possible right of comeback for buyer to remedy undisclosed problems & seller may have given guarantees (e.g. to bank for lending).

  • Negotiate out of all liabilities to get true clean break

  • Legal liability to third parties for debts and obligations of business remains with seller

  • Applies if buyer has contracted to assume responsibility for certain liabilities.

  • Right of indemnity, but not always concrete
Scope of warranties and DD

  • Bigger scope as most contingent tax liabilities transfer to the buyer.

  • Smaller scope as most contingent tax liabilities remain with the seller
Transfer of title

  • Simpler – Stock Transfer Form. Although may need 3rd party consent to change & company contracts may terminate on change of control of company.

  • More complex - Each separate asset of the business must be transferred, 3rd party approval (e.g. landlord). Land & IP need transfer title, loose plant = title transferred by delivery.
FSMA restrictions

  • More onerous - s21 restricts issue of ‘an invitation or inducement to engage in an investment activity’

  • Includes advising/arranging purchase/sale of shares.

  • Any communication/approach about this would be caught by this restriction.Exceptions (p5)

  • Breach = sale unenforceable

  • S21 doesn’t apply.

  • However, if decision to choose assets over shares is taken at a late stage, then still have to comply even if it proceeds as a sale of assets.
Employees

  • No direct effect on contracts of employment.

  • No direct interest unless warranties given in SPA.

  • If TUPE applies obligations transferred to buyer.

  • If not, seller still has obligations.
Extracting cash

  • Cash paid directly to seller as SH. Single Tax (CGT)

  • Cash paid to Co. Double Tax (CT + CGT/IT).

Tax

See more detailed notes p2-3

  • Individual = CGT – chargeable asset.

  • Entrepreneur’s relief. EIS relief available. Emigration & share for share exchanges available

  • Not qualifying assets, so no roll over from CGT/CT (s152 TCGA 92).

  • Company = substantial shareholding(see p 3 for details) or share for share exchanges relief.

  • EIS relief not available.

  • CT for selling company (if income/gain is made).

  • If SH = individual distributed in winding up = CGT (entrepreneur’s relief available = attractive) If dividend = IT (more tax efficient)

  • If SH = company, common reliefs = substantial SH exemption (disposal) and group relief on intra-company dividend (distribution).

  • Roll over relief from CGT/CT (s152 TCGA 92)

  • Balancing charge considerations for WDA (see p2)
TAX IMPLICATIONS FOR ASSET ACQUISITION – SELLER OF AN UNINCORPORATED BUSINESS
TAX TYPE OF SALE IMPLICATION
Income tax Sales for cash Closing year rules – sale results in discontinuance of business carried on by seller – assessed on profits made from the end of the latest accounting period to be assessed until the date of sale, less deductions for overlap profit (i.e. if any profit has been charged to tax in two successive years).
Stock – The more consideration that is apportioned to the sale of trading stock, the higher the seller’s final income assessment will be will.
Balancing Charges – If price paid exceeds WDA of assets, will be subject to balancing charge = excess amount is treated as income profit. In the alternative, HMRC will give an allowance. The more consideration that is apportioned to the sale of plant and machinery, the higher the seller’s final income assessment will be will.

Relief for losses

  • Carry forward (s83 ITA 07) does not apply as losses can only be set against future profits of the trade which the seller no longer partakes in.

  • Terminal loss relief (s89 ITA 07) can be claimed if taxpayer suffers trading loss in final 12 months of trading – can include unrelieved capital allowances. Generates repayment of tax Loss can be :

    • carried across against profits in final tax year; then

    • carried back against profits of the same trade for 3 yrs (most recent first) prior to final tax yr.

  • Carry across/carry back (s64 – 71 ITA 07) can be used to set trading losses made in year of sale against any income or chargeable gains which he has in that/previous yr. Can’t form part of s89
Sales in consideration for shares

Carry forward of unrelieved trading losses – s86 ITA 07

  • Business sold to company wholly or mainly for shares (at least 80%), seller can carry forward any unrelieved trading losses and deduct income received from the company.

  • Deduction from any salary paid as an employee first, then any dividends paid to him as a SH.

  • Available in any year which the seller retains beneficial ownership of the shares
CGT Sales for cash

Entrepreneur’s relief – 10% = max reduction of 10m of qualifying net gains realised.

Qualifying business disposal:

  • Disposal of the whole or part of business where business is sold as a going concern and seller has owned the interest in the business as a whole for a yr before disposal

  • Disposal of Co. shares by an employee or officer of the Co., if Co. is trading co and seller’s personal company (at least 5% ordinary share capital and 5% voting rights) and owned shares for a yr
Annual Exemption - 10,600 for 12/13 tax year

Roll-over relief on replacement of business asset (ss152-158 TCGA 92)

  • Can elect to roll over within 1 yr before or 3 yrs after the sale of the business or partnership share. CGT deferent until replacement assets are disposed.

  • Qualifying asset = land/buildings used for trade, goodwill, fixed plant. NOT SHARES

  • Relief restricted if assets sold have not been used for trade all the time or if only some of the proceeds are reinvested in qualifying replacement assets

  • Partner who allows his firm to use asset can claim relief on selling if he reinvests in qualifying asset.

  • Seller can’t use annual exemption to reduce gain rolled over.

Deferral...

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