Selling a business that has made a loss

Until recently, when the shares in a company were transferred to another owner, which resulted in a change of ownership of more than 51% of the shareholding, the new owners could not use the losses incurred before the ownership change.

What has changed?

Not long ago, the law was changed. If the new owners carried on the business in the same way as the old owners, they could use up the company losses as long as they didn’t relate to prior to 31 March 2014.

What’s the benefits and the downside?

While there’s a benefit by being able to pass on company losses, there’s also a downside for the buyer of the company shares.

Any undisclosed company debts, including if Inland Revenue discovers the company has not accounted for all its profits, will continue to be debts of the company.

This includes any penalties or interest Inland Revenue cares to come up with.

How does this affect potential buyers?

Many potential buyers will prefer to buy the business and not its shares.

So while this is useful in some situations e.g. passing a family business to the next generation it may not be as attractive to arms-length buyers.