My client and his wife own a small trading company and are soon to retire. Their son is an employee and they are considering selling their shares to him but funding the purchase is a problem. If a new company is formed to acquire the parents’ shares with the purchase consideration left outstanding as a simple debt to be repaid from dividends received from the trading company as and when profits/cash allow would the holding company be treated as dormant?
This question commonly arises in situations such as those you have outlined.
I would firstly comment that the debt would represent the outstanding purchase consideration and will not be a loan unless specifically converted to a loan.
If it is converted to a loan...
