Readers forum: Share cycle

We act for a family run business in which the father who currently holds a controlling stake is seeking to exit the company with his son taking over control. A valuation of £1.2m in respect of the father’s shareholding has been agreed between all parties.

The parties are exploring a purchase of own shares by the company which has sufficient distributable reserves. We also consider the conditions for capital gains tax treatment to apply. That said although the company has enough cash to pay the exiting shareholder it will leave the business with insufficient working capital.

The exiting shareholder is willing to make a loan back to the company to support working capital. However we consider that a loan to the company may cause the ongoing connection condition to fail meaning capital gains tax treatment would not...