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Finance Act 2012

Chapter 3

18.New section 257C is an overview of chapter 3 which contains the general requirements under SEIS.

19.New section 257CA sets out the types of shares for which investors can subscribe under the scheme, allowing for shares carrying certain preferential rights to dividends. Shares are still excluded if: they carry preferential rights to assets on winding up; they have any right to be redeemed; the amount and timing of the dividends depend on a decision of the company or any other person; or if they are cumulative. This new definition is the same as that also being introduced for the Enterprise Investment Scheme (EIS).

20.New section 257CA(4) provides that shares must be subscribed for wholly in cash and be fully paid up at the time they are issued.

21.New section 257CB requires that the shares be issued to raise money for a qualifying business activity carried on or to be carried on by the company or by a qualifying 90 per cent subsidiary. Qualifying business activity is as defined at new section 257HG.

22.New section 257CC requires that the money raised from the share issue must be spent by the end of period B, for the purpose of the qualifying business activity for which it was raised.

23.Section 257CC(2) provides that spending money on the acquisition of shares or stock in a company does not of itself amount to spending the money for the purposes of a qualifying business activity.

24.New section 257CD prevents “pre-arranged exits”, which are any arrangements in place (at the time the shares are issued) for the disposal of shares or securities in the company or its assets, or for its activities to cease, or for the investment to be protected from normal commercial risks.

25.New section 257CE requires the issue of shares to be for genuine commercial reasons, and not as part of a tax avoidance arrangement.

26.New section 257CF is the “no disqualifying arrangements” requirement. Arrangements are “disqualifying” if they are entered into with the purpose of ensuring that any of the venture capital scheme tax reliefs are available in respect of the relevant company’s business, and either: all or most of the monies raised under the scheme are paid to or for the benefit of a party to the arrangements; or in the absence of the arrangements, it would be reasonable to expect that the business would be carried on as part of another business by a person who is a party to the arrangements, or a person connected with such a party. This is the same requirement that is being introduced for the EIS and VCT schemes.

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