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HMRC internal manual

Venture Capital Schemes Manual

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HM Revenue & Customs
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VCT: VCT approval: definition of ‘eligible shares’ in a holding

ITA07/S285

The definition of ‘eligible shares’ for the purposes of S274, (which differs from that at S273) changed in relation to accounting periods ending on or after 6 April 2011. The definition applicable depends on when the monies were raised by the VCT.

For shares issued before 6 April 2011, or issued after that date but funded from monies raised by the VCT before that date, or monies derived from monies raised before that date, ‘eligible shares’ means shares in a company which:

  • are comprised in the company’s ordinary share capital,
  • carry no present or future preferential right to dividends or to the company’s assets in a winding up, and
  • carry no present or future right to be redeemed.

For shares issued after 6 April 2011 funded out of monies raised by the VCT after that date, shares are ‘eligible’ unless they carry -

  • A present or future preferential right to the company’s assets on its winding up, or
  • A present or future right to be redeemed, or
  • A present or future preferential right to dividends where:

    • The rights attaching to the share include scope for the amount of the dividend to be varied based on a decision taken by the company, the shareholder or any other person. Note: this exclusion covers only those shares which carry preferential rights and does not therefore prevent the voting of dividends in respect of non-preferential shares, nor does it prevent shareholders from choosing to waive a dividend payment should they wish to do so; or
    • The right to receive dividends is ‘cumulative’ - that is, where a dividend which has become payable is not in fact paid, the company is obliged to pay it a later time, normally once funds become available.