Share exchange into a UK PLC

What a share exchange is

In a share exchange you contribute shares in one company to another company and receive new shares in the acquiring company in return. The typical case: you hold your operating company personally and want a holding company above it. Whether that holding needs to be a PLC or a Ltd will do is something we settle first; the difference is explained in PLC or Ltd.

On paper it is simple. You end up owning the holding, the holding owns your company, and no cash has changed hands. In practice two legal systems look at it: UK company law, which governs how the PLC issues its new shares, and the tax law of the country where you live, which decides whether swapping the shares counts as a disposal.

Brexit and the home-country tax result

Most countries treat a swap of shares as a disposal unless a specific relief applies. Many tax systems have such reliefs, so that a holding can be put in place without taxing gains that have not been realised in cash. The conditions differ from country to country, and that is exactly where Brexit matters.

Where your country's relief is limited to acquiring companies from the EU or the EEA, a UK PLC no longer qualifies since the UK left the EU. The exchange could then be taxed as if you had sold your shares at market value. Other countries' reliefs are not tied to the EU at all, or treat earlier transactions differently. We cannot tell you which applies to you without knowing your country, and we do not pretend to.

So the order is fixed: first have your tax adviser at home confirm the result, in writing, before anything is signed. Then we build the UK side to match.

The UK side: valuation, exceptions, stamp duty

In the UK, a share exchange into a PLC has its rules too, and they are the company secretary's business. A PLC may in principle only allot shares for non-cash consideration if that consideration has been independently valued and the report was made in the six months before allotment (section 593 Companies Act 2006). More in paying for shares with non-cash assets.

For share exchanges there is an important exception. Under section 594, the valuation requirement does not apply where the PLC allots shares in exchange for shares in another company and the offer is open to all holders of that company's shares. A similar exception applies under section 93 where a Ltd allots shares in a share exchange shortly before converting into a PLC. How the conversion itself works is set out in converting a Ltd into a PLC.

And stamp duty: if the company being contributed is a UK company, stamp duty or SDRT is in principle due on the transfer of its shares, even if new shares are given instead of cash. It is then based on the value of what was given. Whether a relief applies, we check before the transfer. If the company being contributed is a foreign company, the UK question usually does not arise: stamp duty and SDRT are not normally payable on foreign shares bought outside the UK.

Sources: legislation.gov.uk: Companies Act 2006, section 593; legislation.gov.uk: Companies Act 2006, section 594; legislation.gov.uk: Companies Act 2006, section 93; GOV.UK: Tax when you buy shares