Joint Venture /Consortium Relief
Another of Price Prior’s clients, SG Limited (‘SG’), a company which manufactures and
supplies medical equipment, has instructed Price Prior to act for it in setting up a new joint
venture to produce specialist packaging for transporting medical supplies. The other party to
the joint venture will be MPK Packaging Limited (‘MPK’), an established packaging and
logistics company. Both SG and MPK have made substantial trading profits in recent years
and they expect this to continue.
The joint venture vehicle will be a company (‘JV Co’). SG and MPK will each hold 40,000
ordinary £1 shares in JV Co. Another 20,000 ordinary shares will be held by key employees
and managers involved in the joint venture, as part of an employee incentivisation package.
In addition, since MPK is putting in a greater share of the initial start-up capital for the joint
venture, MPK will receive 120,000 non-voting non-participating 6% cumulative redeemable
preference £1 shares in JV Co. The ordinary shares carry full voting rights as well as rights
(subject to payment of the preference dividend) to participate in dividends and assets on a
winding up.
It is anticipated that JV Co will make a loss of approximately £10,000 in its first year of
trading.
SG would like to know how, if at all, it can use JV Co’s loss to reduce its own taxable trading
profits.
1. Draw a structure Diagram
With the fixed rate non-participating shares, they are not ordinary shares for the
definition, and therefore do not apply.
2. Identify the consortium company
Consortium relief:
o (1) SG and MPL own 80%
o (2) SG and MPL each have 40% (greater than 5%
o (3) SG and MPL each do not own more than 75%
Thus, JV Co is a consortium company and SG and MPL are consortium members.
Another of Price Prior’s clients, SG Limited (‘SG’), a company which manufactures and
supplies medical equipment, has instructed Price Prior to act for it in setting up a new joint
venture to produce specialist packaging for transporting medical supplies. The other party to
the joint venture will be MPK Packaging Limited (‘MPK’), an established packaging and
logistics company. Both SG and MPK have made substantial trading profits in recent years
and they expect this to continue.
The joint venture vehicle will be a company (‘JV Co’). SG and MPK will each hold 40,000
ordinary £1 shares in JV Co. Another 20,000 ordinary shares will be held by key employees
and managers involved in the joint venture, as part of an employee incentivisation package.
In addition, since MPK is putting in a greater share of the initial start-up capital for the joint
venture, MPK will receive 120,000 non-voting non-participating 6% cumulative redeemable
preference £1 shares in JV Co. The ordinary shares carry full voting rights as well as rights
(subject to payment of the preference dividend) to participate in dividends and assets on a
winding up.
It is anticipated that JV Co will make a loss of approximately £10,000 in its first year of
trading.
SG would like to know how, if at all, it can use JV Co’s loss to reduce its own taxable trading
profits.
1. Draw a structure Diagram
With the fixed rate non-participating shares, they are not ordinary shares for the
definition, and therefore do not apply.
2. Identify the consortium company
Consortium relief:
o (1) SG and MPL own 80%
o (2) SG and MPL each have 40% (greater than 5%
o (3) SG and MPL each do not own more than 75%
Thus, JV Co is a consortium company and SG and MPL are consortium members.
