What constitutes a company reorganisation under section 39 of ITEPA 2003?

A company reorganisation occurs when an acquiring company obtains control of a target company whose shares are subject to unexercised EMI qualifying options. This can happen through a general offer for the entire issued share capital or all shares of the same class, a court-sanctioned compromise or arrangement, compulsory acquisition of minority shares, or a qualifying exchange of shares.

What is an outstanding qualifying option for EMI purposes?

An outstanding qualifying option is an Enterprise Management Incentives qualifying option that has been granted to an employee but has not yet been exercised at the time the company reorganisation takes place. These unexercised options may then be exchanged for replacement options over shares in the acquiring company, preserving the EMI tax advantages.

How are shares already held by the acquiring company treated when assessing a general offer under section 39?

When determining whether a general offer covers the whole issued share capital or all shares of the relevant class, any shares already held by the person making the offer or by a connected person are excluded from the calculation. The offer only needs to cover the shares not already in the acquirer's hands.

Does the method of communicating a general offer affect whether it qualifies as a reorganisation under section 39?

No, the method of communication does not affect qualification. The rules confirm that it does not matter if a general offer is communicated to different shareholders by different means. For example, some shareholders may receive the offer electronically while others receive it by post, and it still qualifies as a general offer.

Income Tax (Earnings and Pensions) Act 2003 section 39

Company reorganisations: introduction [ITEPA 2003 Sch 5 para 39]

Section 39 defines what counts as a "company reorganisation" for the purposes of Enterprise Management Incentives (EMI) share options, setting out the circumstances in which an acquiring company's takeover triggers the reorganisation rules.

A company reorganisation occurs when an acquiring company obtains control of a company whose shares are subject to unexercised EMI qualifying options, whether through a general offer for the entire issued share capital or for all shares of the same class as those under option
A reorganisation also arises where control is obtained through a court-sanctioned compromise or arrangement under the Companies Act 2006, or where the acquiring company becomes bound or entitled to buy out minority shareholders under that Act's takeover offer provisions
A further route to reorganisation is where the acquiring company obtains all shares of the target company through a qualifying exchange of shares
When determining whether a general offer captures the whole share capital or all shares of a class, any shares already held by the person making the offer or a connected person are excluded from the calculation

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member