VCM25130 - EIS: income tax relief: connection with the company: exception to 30% tests

ICTA/S291B (5A); ITA/S170

The 30% shareholding tests described in VCM25100, and the control test described in VCM25160, are subject to one exception. They do not apply in the period between the incorporation of the company and:

• the date when it first began preparing to carry on a trade,

or

• the date when it first issued shares other than the subscriber shares,

whichever is earlier. (Subscriber shares are those subscribed for by those who signed the Memorandum of Association; they are treated as issued on the incorporation of the company.)

Example

Rama buys a company 'off the shelf' from a firm of company formation agents. There is a single subscriber share, which is re-registered in his name. A month later the company issues shares to a number of investors including Rama, who then holds only 20% of the shares. With the money raised by the issue the company acquires a trade.

Thus during the initial period of one month, which fell within the three year straddling period (ICTA)/ Period A (ITA)(see VCM20600) related to the share issue, Rama owned the company. But because there were no other changes to the share capital and the company had not yet started preparing to trade, this is disregarded.