188体育

CTA10/S1038 Section 1037: effect of entitlement to profits

CTA10/S1038 states that the seller鈥檚 interest would not be substantially reduced for CTA10/S1037 if the seller would be entitled to more than 75% of the company鈥檚 total profits which are available for distribution. The share of the profits is expressed as a fraction.

Profits available for distribution are defined in CA06/S830 but with differences mentioned in CTA10/S1038(4) and (5). Profits available for distribution, for the purpose of CTA10/S1038(1):

• Profits defined as per CA06/S830

And increased by:

• Statutory addition of 拢100
• Sum equivalent to the periodic fixed rate distributions entitled to the seller from the company, where such an entitlement exists.
• Amount equal to the excess when sums payable by the company, on purchase of its own shares and any other share purchase at the same time, exceed the amount of profits available for distribution immediately before purchase.

References to entitlement, except for trustees and personal representatives, are to beneficial entitlement.

EXAMPLE

ABC Manufacturers Ltd has 100,000 ordinary 拢1 shares and 2,000 8% preference shares in issue which are allocated accordingly:

• Mr D 鈥� 21,000 拢1 ordinary shares and 1,200 preference shares
• Mrs E 鈥� 57,000 拢1 ordinary shares and 800 preference shares
• Mr M 鈥� 5,000 拢1 ordinary shares
• Mr R 鈥� 17,000 拢1 ordinary shares

The company wishes to purchase 15,000 of its own 拢1 ordinary shares from Mr D for 拢30,000. The distributable profits of the company were 拢18,000.

The CTA10/S1038 profits available for distribution for the test would be:

Distributable profits 拢18,000

Statutory addition 拢 100

Preference dividends 拢 160

Total 拢18,260

Mr D鈥檚 entitlement prior to the purchase 鈥� 21,000 ordinary shares and 1,200 preference shares:

Preference dividend 拢 96

21% of total profits of 拢18,100 拢 3,801

Total entitlement 拢 3,897

This represents 21.34% of the total profits 鈥� 拢3,897 of 拢18,260

Mr D鈥檚 entitlement subsequent to purchase 鈥� 6,000 ordinary shares and 1,200 preference shares.

Since the company has purchased 15,000 ordinary shares of its own share capital, these are treated as immediately being cancelled Therefore the total share capital has been decreased from 100,000 to 85,000.

Hence Mr D鈥檚 shareholding now represents 6,000 out of 85,000 so 7.06%.

Preference dividend 拢 96

7.06% of total profits of 拢18,100 拢 1,277.86

Total entitlement 拢 1,373.86

This represents 7.52% of the total profits 鈥� 拢1,373.86 of 拢18,260

The potential profits receivable by Mr D post purchase are less than 75% of his prior entitlement so the test is satisfied.