VCM20065 - EIS: general: arrangements to reduce risk: pre- arranged exits

The first type of arrangements mentioned at VCM20060 consists of:

• arrangements which might in any way lead to the disposal of the shares, or of other shares in the company,
• arrangements which might lead to the cessation of the company's trade, or of any trade carried on by a person connected with the company,
• arrangements for the disposal of some or all of the assets of the company or of any person connected with the company.

This is intended to ensure that the company is capable of carrying on its trade indefinitely under its existing ownership. There is a let-out for arrangements, of the kind which might be found in a company's Articles of Association, which merely ensure that if its trade fails the company can be wound up in an orderly manner.

The rule does not stop directors of a company from indicating in advance to potential investors how they envisage that shares in the company might be disposed of at some later date.