Q&As

Could there be a disqualifying event under section 536 of the Income Tax (Earnings and Pensions) Act 2003 if a company with only one share class and EMI options undertakes a share buyback and cancellation from one or more shareholders, without changing the articles but with some waivers of shareholder pre-emption rights?

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Published on LexisPSL on 03/02/2020

The following Share Incentives Q&A provides comprehensive and up to date legal information covering:

  • Could there be a disqualifying event under section 536 of the Income Tax (Earnings and Pensions) Act 2003 if a company with only one share class and EMI options undertakes a share buyback and cancellation from one or more shareholders, without changing the articles but with some waivers of shareholder pre-emption rights?

Could there be a disqualifying event under section 536 of the Income Tax (Earnings and Pensions) Act 2003 if a company with only one share class and EMI options undertakes a share buyback and cancellation from one or more shareholders, without changing the articles but with some waivers of shareholder pre-emption rights?

In the scenario of this Q&A, it is assumed that the arrangement will not involve any change to the terms of the EMI option (so that section 536(1)(a) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) will not apply), nor any conversion of the option shares to shares of a different class (so that ITEPA 2003, s 536(1)(d) will not apply), nor any grant of a company share option plan option (so that ITEPA 2003, s 536(1)(e) will not apply). It is also assumed that the buyback will not have the effect that the requirements of ITEPA 2003, Sch 5 will no longer be met in relation to any of the EMI options (so that ITEPA 2003, s 536(1)(b) will not apply).

On the basis of the above, it appears that the only provision in ITEPA 2003, s 536 under which an EMI disqualifying event may be triggered is ITEPA 2003, s 536(1)(c).

This provision will only apply if there is an alteration of share capital to which both of ITEPA 2003,

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