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HMRC internal manual

Venture Capital Schemes Manual

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VCT: VCT qualifying holdings: scheme of reconstruction involving issue of shares or securities

SI2661/2002 Regulations 6 & 9

There may be an arrangement between a company (Company A) and the persons (including a VCT) holding shares or securities of that company in it (or, where there are different classes, shares or securities of any class) to undertake a scheme of reconstruction.

If, under those arrangements, another company (Company B) issues shares or securities to those persons in respect of and in proportion to the original holdings, the new shares or securities issued to the VCT can continue to be treated as qualifying holdings of the VCT. This is the case whether or not all the shares or securities originally held are involved in the arrangement; the VCT can retain ‘old’ shares or securities.

Specifically, the Regulations allow that:

  • During the reorganisation period, the new shares or securities held by the VCT are treated as meeting the requirements of ITA/Part 6 Chapter 4. The reorganisation period begins when the first share or security holder receives shares or securities of Company B under the reconstruction, and ends when the last of the shares or securities of Company B to be issued under the reconstruction (excluding any issued in pursuance of an earn-out right - see VCM54230) are issued.
  • After the end of the scheme of reconstruction the new shares or securities are treated as satisfying the requirements of ITA07/S293 regarding employment of money raised - see VCM55150 - and ITA07/S287 regarding the maximum qualifying investment held by a VCT - see VCM55060.
  • Where, immediately after the issue of the new shares or securities, the company is no longer unquoted (and therefore fails to meet the requirements of ITA07/S295, see VCM55180) the new shares or securities are nevertheless treated as meeting those requirements for a certain period. That period begins on the day the new shares or securities were issued to the VCT (or, if later, the day they became fully tradeable - see VCM55350) and ends immediately after the second anniversary of that date or when the VCT disposes of the shares or securities, whichever is the earlier. The same period applies where the company is quoted and fails other requirements of Chapter 4, other than the requirements of S293, S295 and S287 covered above.
  • Where, immediately after the issue of the new shares or securities, they do not meet the requirements of Chapter 4, other than S293, S295 and S287 as mentioned above, they are nevertheless treated as meeting those requirements for a certain period. That period begins on the date the new shares or securities were issued to the VCT and ends (subject to the variation below) in the case of shares, three years after the issue date, and, in the case of securities, five years after the issue date, or the date when the VCT disposes of the shares or securities if that is earlier.
  • The three and five year periods referred to above are varied if, before they expire, the new shares or securities are marketed to the general public. In that case, the end of the period is the second anniversary of the date they were marketed, or, if later, the second anniversary of the date they became fully tradeable - see VCM55350.

For the valuation consequences of this type of reconstruction, see VCM54190.