Question re Accounting Treatment

Question re Accounting Treatment

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Doofus

Original Poster:

25,732 posts

172 months

Thursday 26th May 2016
quotequote all
Alpinestars said:
Not sure what your exact question is.

Debt or equity into trade co - it doesn't matter.
Except that there's no way to get debt or equity into trade co (the one being purchased), because it's not buying its own shares, so the purchase consideration is paid by the buyer directly to the seller. It doesn't go via the target, so no debt or equity is created there. If another Ltd co makes the purchase, then that company has made an investment, and values such on its books. If an individual makes the purchase, then there's no entity from whom he can get that money repaid over time.

Alpinestars

13,954 posts

243 months

Thursday 26th May 2016
quotequote all
Doofus said:
Except that there's no way to get debt or equity into trade co (the one being purchased), because it's not buying its own shares, so the purchase consideration is paid by the buyer directly to the seller. It doesn't go via the target, so no debt or equity is created there. If another Ltd co makes the purchase, then that company has made an investment, and values such on its books. If an individual makes the purchase, then there's no entity from whom he can get that money repaid over time.
Agreed re a purchase by A. My example was setting up a structure.

But if we are talking about buying a company, either direct or through a holding company, the holding company structure can be debt or equity and it makes no difference from a tax perspective. It's just more difficult to get the investment out if holdco is funded via share capital but not insurmountable. Are you suggesting there is some advantage to funding holdco with debt? There isn't. Apart from the fact a return of capital is not as easy as repaying a loan.

And tradeco can pay dividends to holdco tax free.

Edited by Alpinestars on Thursday 26th May 15:02

Doofus

Original Poster:

25,732 posts

172 months

Thursday 26th May 2016
quotequote all
Alpinestars said:
Agreed re a purchase by A. My example was setting up a structure.

But if we are talking about buying a company, either direct or through a holding company, the holding company structure can be debt or equity and it makes no difference from a tax perspective. It's just more difficult to get the investment out if holdco is funded via share capital but not insurmountable. Are you suggesting there is some advantage to funding holdco with debt? There isn't. Apart from the fact a return of capital is not as easy as repaying a loan.

And tradeco can pay dividends to holdco tax free.

Edited by Alpinestars on Thursday 26th May 15:02
I'm suggesting that the individual lends money to holdco, which uses it to buy tradeco. Tradeco then pays divis to Holdco and the individual withdraws money from holdco as loan repayments, and therefore free of tax.

Alpinestars

13,954 posts

243 months

Thursday 26th May 2016
quotequote all
Doofus said:
I'm suggesting that the individual lends money to holdco, which uses it to buy tradeco. Tradeco then pays divis to Holdco and the individual withdraws money from holdco as loan repayments, and therefore free of tax.
The free of tax bit is a red herring. The money could be returned by way of a tax free return of capital. The only difference between a loan or equity into holdco is logistics of getting the initial investment out.

Doofus

Original Poster:

25,732 posts

172 months

Thursday 26th May 2016
quotequote all
Alpinestars said:
The free of tax bit is a red herring. The money could be returned by way of a tax free return of capital. The only difference between a loan or equity into holdco is logistics of getting the initial investment out.
Yes, fair enough. The matter at hand was about the use, or not, of a holding co, rather than the actual mechanics of the cash treatment.