2nd condition (paragraph 3 Sch 5AA): Equal entitlement to new shares
The shareholders in the original company that hold the class (or classes) of ordinary share involved in the scheme of reconstruction must have the same entitlement to acquire ordinary shares in the successor company as any other member of that class. This does not apply to the company’s holding of its own shares in treasury because such shares are treated for the purposes of tax in respect of chargeable gains as though they had been cancelled.
Company A has one class of ordinary share capital owned 50% each by Alice and Ben. Each share carries equal entitlement to share in the profits of A. Part of the business is demerged and the new company, company B issues shares to the ordinary shareholders in company A. However the shares issued by company B are in 2 classes, X & Y. The X shares only carry an entitlement to 25% of the profits whilst the Y shares carry an entitlement to 75% of the profits. Ben is entitled to receive the X shares and Alice the Y shares. Here, the second condition is not met.