Accounting for share exchange transactions

An area not necessarily at the forefront of every tax adviser’s mind when designing company restructure transactions is how the proposals will impact the accounts of the companies subject to the restructuring.

While it may be easy to consider this the remit of the company’s accountant (if different) the commercial impact on the accounts should not be overlooked because in some cases an adverse accounting outcome may jeopardise the entire purpose of the restructuring such as in cases where reserves are substantially reduced before a sale.

The effect on distributable reserves is always an important point in ensuring a successful transaction. Another sometimes misunderstood concept is the accounting for share exchange transactions and the effect of the Companies Act 2006 Chapter 7. The effect of this may in turn have an impact on the ability to create reserves via a reduction of...